Dataset info
| Number of variables | 46 |
|---|---|
| Number of observations | 3330 |
| Missing cells | 15029 (9.8%) |
| Duplicate rows | 0 (0.0%) |
| Total size in memory | 1.1 MiB |
| Average record size in memory | 333.0 B |
Variables types
| Numeric | 26 |
|---|---|
| Categorical | 7 |
| Boolean | 6 |
| Date | 0 |
| URL | 0 |
| Text (Unique) | 1 |
| Rejected | 6 |
| Unsupported | 0 |
Warnings
age has 92 (2.8%) zeros | Zeros |
age has 182 (5.5%) missing values | Missing |
blueSky has 1328 (39.9%) missing values | Missing |
bookValue has 418 (12.6%) missing values | Missing |
city has a high cardinality: 948 distinct values | Warning |
closeDay1 has 115 (3.5%) missing values | Missing |
commonEquity is highly skewed (γ1 = -41.06869092) | Skewed |
commonEquity has 679 (20.4%) missing values | Missing |
commonEquity.1 has 505 (15.2%) missing values | Missing |
investmentReceived is highly skewed (γ1 = 36.1068583) | Skewed |
investmentReceived has 1500 (45.0%) missing values | Missing |
ipoSize is highly correlated with amountOnProspectus (ρ = 0.9926927282) | Rejected |
leverage has 633 (19.0%) zeros | Zeros |
leverage has 376 (11.3%) missing values | Missing |
managementFee is highly correlated with ipoSize (ρ = 0.9167136414) | Rejected |
manager has a high cardinality: 1487 distinct values | Warning |
nasdaq2weeksBefore is highly correlated with dj2weeksBefore (ρ = 0.9299237865) | Rejected |
netIncome has 392 (11.8%) missing values | Missing |
nExecutives has 1429 (42.9%) missing values | Missing |
nPatents is highly skewed (γ1 = 29.0217917) | Skewed |
nPatents has 2491 (74.8%) zeros | Zeros |
nVCs has 1329 (39.9%) missing values | Missing |
patRatio has 266 (8.0%) zeros | Zeros |
patRatio has 1287 (38.6%) missing values | Missing |
priorFinancing has 113 (3.4%) zeros | Zeros |
priorFinancing has 1417 (42.6%) missing values | Missing |
reputationAvg has 44 (1.3%) zeros | Zeros |
reputationLeadAvg has 230 (6.9%) zeros | Zeros |
reputationLeadMax has 230 (6.9%) zeros | Zeros |
reputationSum is highly correlated with nUnderwriters (ρ = 0.9577851468) | Rejected |
rf has a high cardinality: 3058 distinct values | Warning |
rf has 273 (8.2%) missing values | Missing |
roa has 392 (11.8%) missing values | Missing |
sharesOfferedPerc has 262 (7.9%) missing values | Missing |
sp2weeksBefore is highly correlated with nasdaq2weeksBefore (ρ = 0.964605601) | Rejected |
totalAssets has 357 (10.7%) missing values | Missing |
totalProceeds is highly correlated with ipoSize (ρ = 0.9951531237) | Rejected |
totalRevenue is highly skewed (γ1 = 29.07194647) | Skewed |
totalRevenue has 176 (5.3%) zeros | Zeros |
totalRevenue has 375 (11.3%) missing values | Missing |
age
Numeric
| Distinct count | 134 |
|---|---|
| Unique (%) | 4.0% |
| Missing (%) | 5.5% |
| Missing (n) | 182 |
| Infinite (%) | 0.0% |
| Infinite (n) | 0 |
| Mean | 16.18456163 |
|---|---|
| Minimum | 0 |
| Maximum | 175 |
| Zeros (%) | 2.8% |
Quantile statistics
| Minimum | 0 |
|---|---|
| 5-th percentile | 1 |
| Q1 | 4 |
| Median | 8 |
| Q3 | 17 |
| 95-th percentile | 67.65 |
| Maximum | 175 |
| Range | 175 |
| Interquartile range | 13 |
Descriptive statistics
| Standard deviation | 22.56715973 |
|---|---|
| Coef of variation | 1.39436336 |
| Kurtosis | 10.12220304 |
| Mean | 16.18456163 |
| MAD | 14.18712532 |
| Skewness | 2.968657105 |
| Sum | 50949 |
| Variance | 509.2766983 |
| Memory size | 26.1 KiB |
Histogram with fixed size bins (bins=50)
| Value | Count | Frequency (%) | |
| 3 | 220 | 6.6% | |
| 4 | 217 | 6.5% | |
| 7 | 197 | 5.9% | |
| 5 | 191 | 5.7% | |
| 6 | 186 | 5.6% | |
| 2 | 183 | 5.5% | |
| 8 | 175 | 5.3% | |
| 1 | 152 | 4.6% | |
| 9 | 134 | 4.0% | |
| 10 | 119 | 3.6% | |
| Other values (123) | 1374 | 41.3% | |
| (Missing) | 182 | 5.5% |
Minimum 5 values
| Value | Count | Frequency (%) | |
| 0 | 92 | 2.8% | |
| 1 | 152 | 4.6% | |
| 2 | 183 | 5.5% | |
| 3 | 220 | 6.6% | |
| 4 | 217 | 6.5% |
Maximum 5 values
| Value | Count | Frequency (%) | |
| 175 | 1 | < 0.1% | |
| 165 | 1 | < 0.1% | |
| 159 | 1 | < 0.1% | |
| 158 | 1 | < 0.1% | |
| 157 | 1 | < 0.1% |
amountOnProspectus
Numeric
| Distinct count | 1413 |
|---|---|
| Unique (%) | 42.4% |
| Missing (%) | 0.0% |
| Missing (n) | 0 |
| Infinite (%) | 0.0% |
| Infinite (n) | 0 |
| Mean | 178.2675375 |
|---|---|
| Minimum | 1.4 |
| Maximum | 16006.9 |
| Zeros (%) | 0.0% |
Quantile statistics
| Minimum | 1.4 |
|---|---|
| 5-th percentile | 15.1 |
| Q1 | 43.2 |
| Median | 80 |
| Q3 | 160 |
| 95-th percentile | 600 |
| Maximum | 16006.9 |
| Range | 16005.5 |
| Interquartile range | 116.8 |
Descriptive statistics
| Standard deviation | 508.2252318 |
|---|---|
| Coef of variation | 2.850912952 |
| Kurtosis | 558.7865097 |
| Mean | 178.2675375 |
| MAD | 169.3414611 |
| Skewness | 19.61089764 |
| Sum | 593630.9 |
| Variance | 258292.8862 |
| Memory size | 26.1 KiB |
Histogram with fixed size bins (bins=50)
Histogram with variable size bins (bins=[1.40000e+00 5.45000e+00 1.49500e+01 1.50500e+01 1.99000e+01 ... 7.28250e+02 9.70500e+02 1.91995e+03 4.14425e+03 1.60069e+04], "bayesian blocks" binning strategy used)
| Value | Count | Frequency (%) | |
| 75 | 44 | 1.3% | |
| 60 | 42 | 1.3% | |
| 90 | 30 | 0.9% | |
| 40 | 29 | 0.9% | |
| 48 | 28 | 0.8% | |
| 72 | 27 | 0.8% | |
| 45 | 27 | 0.8% | |
| 56 | 27 | 0.8% | |
| 50 | 25 | 0.8% | |
| 35 | 24 | 0.7% | |
| Other values (1403) | 3027 | 90.9% |
Minimum 5 values
| Value | Count | Frequency (%) | |
| 1.4 | 1 | < 0.1% | |
| 1.7 | 1 | < 0.1% | |
| 3 | 1 | < 0.1% | |
| 3.3 | 1 | < 0.1% | |
| 3.5 | 2 | 0.1% |
Maximum 5 values
| Value | Count | Frequency (%) | |
| 16006.9 | 1 | < 0.1% | |
| 15774 | 1 | < 0.1% | |
| 5470 | 1 | < 0.1% | |
| 4403.5 | 1 | < 0.1% | |
| 3885 | 1 | < 0.1% |
blueSky
Numeric
| Distinct count | 75 |
|---|---|
| Unique (%) | 2.3% |
| Missing (%) | 39.9% |
| Missing (n) | 1328 |
| Infinite (%) | 0.0% |
| Infinite (n) | 0 |
| Mean | 12916.11588 |
|---|---|
| Minimum | 500 |
| Maximum | 450000 |
| Zeros (%) | 0.0% |
Quantile statistics
| Minimum | 500 |
|---|---|
| 5-th percentile | 2500 |
| Q1 | 5000 |
| Median | 10000 |
| Q3 | 15000 |
| 95-th percentile | 30000 |
| Maximum | 450000 |
| Range | 449500 |
| Interquartile range | 10000 |
Descriptive statistics
| Standard deviation | 18172.97985 |
|---|---|
| Coef of variation | 1.407000372 |
| Kurtosis | 344.3270521 |
| Mean | 12916.11588 |
| MAD | 7785.676912 |
| Skewness | 15.37073646 |
| Sum | 25858064 |
| Variance | 330257196.7 |
| Memory size | 26.1 KiB |
Histogram with fixed size bins (bins=50)
| Value | Count | Frequency (%) | |
| 10000 | 540 | 16.2% | |
| 5000 | 492 | 14.8% | |
| 15000 | 289 | 8.7% | |
| 20000 | 126 | 3.8% | |
| 25000 | 94 | 2.8% | |
| 7500 | 79 | 2.4% | |
| 30000 | 45 | 1.4% | |
| 3000 | 38 | 1.1% | |
| 2500 | 37 | 1.1% | |
| 1000 | 33 | 1.0% | |
| Other values (64) | 229 | 6.9% | |
| (Missing) | 1328 | 39.9% |
Minimum 5 values
| Value | Count | Frequency (%) | |
| 500 | 3 | 0.1% | |
| 600 | 1 | < 0.1% | |
| 1000 | 33 | 1.0% | |
| 1500 | 7 | 0.2% | |
| 2000 | 28 | 0.8% |
Maximum 5 values
| Value | Count | Frequency (%) | |
| 450000 | 2 | 0.1% | |
| 225000 | 1 | < 0.1% | |
| 130000 | 1 | < 0.1% | |
| 100000 | 2 | 0.1% | |
| 85000 | 2 | 0.1% |
bookValue
Numeric
| Distinct count | 2906 |
|---|---|
| Unique (%) | 87.3% |
| Missing (%) | 12.6% |
| Missing (n) | 418 |
| Infinite (%) | 0.0% |
| Infinite (n) | 0 |
| Mean | 283.4410952 |
|---|---|
| Minimum | -8258.009719 |
| Maximum | 24277.0171 |
| Zeros (%) | 0.0% |
Quantile statistics
| Minimum | -8258.009719 |
|---|---|
| 5-th percentile | -17.77385478 |
| Q1 | 34.59567015 |
| Median | 86.0785325 |
| Q3 | 198.504079 |
| 95-th percentile | 1077.047681 |
| Maximum | 24277.0171 |
| Range | 32535.02682 |
| Interquartile range | 163.9084089 |
Descriptive statistics
| Standard deviation | 1113.94607 |
|---|---|
| Coef of variation | 3.930079614 |
| Kurtosis | 187.5373949 |
| Mean | 283.4410952 |
| MAD | 355.7282402 |
| Skewness | 11.63639104 |
| Sum | 825380.4692 |
| Variance | 1240875.847 |
| Memory size | 26.1 KiB |
Histogram with fixed size bins (bins=50)
| Value | Count | Frequency (%) | |
| 3931.997152 | 4 | 0.1% | |
| 5.712912 | 2 | 0.1% | |
| 149.1215551 | 2 | 0.1% | |
| 5.6281 | 2 | 0.1% | |
| 6.9195302 | 2 | 0.1% | |
| 1039.989813 | 1 | < 0.1% | |
| -75.0548397 | 1 | < 0.1% | |
| 279.9302646 | 1 | < 0.1% | |
| 80.173881 | 1 | < 0.1% | |
| -10.045071 | 1 | < 0.1% | |
| Other values (2895) | 2895 | 86.9% | |
| (Missing) | 418 | 12.6% |
Minimum 5 values
| Value | Count | Frequency (%) | |
| -8258.009719 | 1 | < 0.1% | |
| -4480.0044 | 1 | < 0.1% | |
| -1591.001525 | 1 | < 0.1% | |
| -1076.762882 | 1 | < 0.1% | |
| -1029.855908 | 1 | < 0.1% |
Maximum 5 values
| Value | Count | Frequency (%) | |
| 24277.0171 | 1 | < 0.1% | |
| 20453.00848 | 1 | < 0.1% | |
| 19267.99367 | 1 | < 0.1% | |
| 16388.96976 | 1 | < 0.1% | |
| 13866.02123 | 1 | < 0.1% |
city
Categorical
| Distinct count | 948 |
|---|---|
| Unique (%) | 28.5% |
| Missing (%) | < 0.1% |
| Missing (n) | 1 |
| NEW YORK | 195 |
|---|---|
| HOUSTON | 98 |
| SAN DIEGO | 87 |
| Other values (944) |
| Value | Count | Frequency (%) | |
| NEW YORK | 195 | 5.9% | |
| HOUSTON | 98 | 2.9% | |
| SAN DIEGO | 87 | 2.6% | |
| CAMBRIDGE | 78 | 2.3% | |
| SAN FRANCISCO | 71 | 2.1% | |
| DALLAS | 57 | 1.7% | |
| SUNNYVALE | 53 | 1.6% | |
| CHICAGO | 48 | 1.4% | |
| SAN JOSE | 47 | 1.4% | |
| SANTA CLARA | 42 | 1.3% | |
| Other values (937) | 2553 | 76.7% |
| Max length | 30 |
|---|---|
| Mean length | 9.136036036 |
| Min length | 3 |
| Contains chars | True |
| Contains digits | True |
| Contains spaces | True |
| Contains non-words | True |
closeDay1
Numeric
| Distinct count | 1437 |
|---|---|
| Unique (%) | 43.2% |
| Missing (%) | 3.5% |
| Missing (n) | 115 |
| Infinite (%) | 0.0% |
| Infinite (n) | 0 |
| Mean | 18.84196146 |
|---|---|
| Minimum | -17.125 |
| Maximum | 280 |
| Zeros (%) | 0.0% |
Quantile statistics
| Minimum | -17.125 |
|---|---|
| 5-th percentile | 7 |
| Q1 | 11.34375 |
| Median | 15.5625 |
| Q3 | 21.75 |
| 95-th percentile | 40.01875 |
| Maximum | 280 |
| Range | 297.125 |
| Interquartile range | 10.40625 |
Descriptive statistics
| Standard deviation | 15.02031499 |
|---|---|
| Coef of variation | 0.7971736395 |
| Kurtosis | 69.18363178 |
| Mean | 18.84196146 |
| MAD | 8.333906389 |
| Skewness | 6.184502865 |
| Sum | 60576.90608 |
| Variance | 225.6098624 |
| Memory size | 26.1 KiB |
Histogram with fixed size bins (bins=50)
| Value | Count | Frequency (%) | |
| 13 | 38 | 1.1% | |
| 15 | 37 | 1.1% | |
| 20 | 34 | 1.0% | |
| 12 | 33 | 1.0% | |
| 14 | 30 | 0.9% | |
| 10 | 28 | 0.8% | |
| 8 | 27 | 0.8% | |
| 9 | 27 | 0.8% | |
| 11 | 27 | 0.8% | |
| 16 | 26 | 0.8% | |
| Other values (1426) | 2908 | 87.3% | |
| (Missing) | 115 | 3.5% |
Minimum 5 values
| Value | Count | Frequency (%) | |
| -17.125 | 1 | < 0.1% | |
| 3.875 | 1 | < 0.1% | |
| 3.98 | 2 | 0.1% | |
| 4 | 2 | 0.1% | |
| 4.01 | 1 | < 0.1% |
Maximum 5 values
| Value | Count | Frequency (%) | |
| 280 | 1 | < 0.1% | |
| 239.25 | 1 | < 0.1% | |
| 212.625 | 1 | < 0.1% | |
| 184.75 | 1 | < 0.1% | |
| 172 | 1 | < 0.1% |
commonEquity
Numeric
| Distinct count | 1740 |
|---|---|
| Unique (%) | 52.3% |
| Missing (%) | 20.4% |
| Missing (n) | 679 |
| Infinite (%) | 0.0% |
| Infinite (n) | 0 |
| Mean | -0.8645650698 |
|---|---|
| Minimum | -372.24 |
| Maximum | 8.892 |
| Zeros (%) | 0.0% |
Quantile statistics
| Minimum | -372.24 |
|---|---|
| 5-th percentile | -4.225 |
| Q1 | -0.9375 |
| Median | 0.062 |
| Q3 | 0.4245 |
| 95-th percentile | 0.869 |
| Maximum | 8.892 |
| Range | 381.132 |
| Interquartile range | 1.362 |
Descriptive statistics
| Standard deviation | 7.813684084 |
|---|---|
| Coef of variation | -9.037705035 |
| Kurtosis | 1930.051669 |
| Mean | -0.8645650698 |
| MAD | 1.597567723 |
| Skewness | -41.06869092 |
| Sum | -2291.962 |
| Variance | 61.05365897 |
| Memory size | 26.1 KiB |
Histogram with fixed size bins (bins=50)
| Value | Count | Frequency (%) | |
| 0.061 | 11 | 0.3% | |
| 0.078 | 8 | 0.2% | |
| 0.098 | 7 | 0.2% | |
| 0.115 | 6 | 0.2% | |
| 0.174 | 6 | 0.2% | |
| 0.076 | 6 | 0.2% | |
| 0.177 | 6 | 0.2% | |
| 0.102 | 6 | 0.2% | |
| 0.153 | 6 | 0.2% | |
| 0.646 | 5 | 0.2% | |
| Other values (1729) | 2584 | 77.6% | |
| (Missing) | 679 | 20.4% |
Minimum 5 values
| Value | Count | Frequency (%) | |
| -372.24 | 1 | < 0.1% | |
| -61.086 | 1 | < 0.1% | |
| -54.46 | 1 | < 0.1% | |
| -44.52 | 1 | < 0.1% | |
| -31.386 | 1 | < 0.1% |
Maximum 5 values
| Value | Count | Frequency (%) | |
| 8.892 | 1 | < 0.1% | |
| 5.651 | 1 | < 0.1% | |
| 3.702 | 1 | < 0.1% | |
| 1.663 | 1 | < 0.1% | |
| 1.204 | 1 | < 0.1% |
commonEquity.1
Numeric
| Distinct count | 1743 |
|---|---|
| Unique (%) | 52.3% |
| Missing (%) | 15.2% |
| Missing (n) | 505 |
| Infinite (%) | 0.0% |
| Infinite (n) | 0 |
| Mean | 78.56334513 |
|---|---|
| Minimum | 0.37 |
| Maximum | 374.75 |
| Zeros (%) | 0.0% |
Quantile statistics
| Minimum | 0.37 |
|---|---|
| 5-th percentile | 21.552 |
| Q1 | 61.49 |
| Median | 92.84 |
| Q3 | 99.82 |
| 95-th percentile | 100 |
| Maximum | 374.75 |
| Range | 374.38 |
| Interquartile range | 38.33 |
Descriptive statistics
| Standard deviation | 27.53337347 |
|---|---|
| Coef of variation | 0.3504608087 |
| Kurtosis | 4.572609728 |
| Mean | 78.56334513 |
| MAD | 22.63322617 |
| Skewness | -0.6040774515 |
| Sum | 221941.45 |
| Variance | 758.0866547 |
| Memory size | 26.1 KiB |
Histogram with fixed size bins (bins=50)
| Value | Count | Frequency (%) | |
| 100 | 652 | 19.6% | |
| 99.91 | 7 | 0.2% | |
| 97.62 | 6 | 0.2% | |
| 98.02 | 6 | 0.2% | |
| 99.66 | 6 | 0.2% | |
| 99.87 | 6 | 0.2% | |
| 98.38 | 5 | 0.2% | |
| 97.88 | 5 | 0.2% | |
| 96.77 | 5 | 0.2% | |
| 99.92 | 5 | 0.2% | |
| Other values (1732) | 2122 | 63.7% | |
| (Missing) | 505 | 15.2% |
Minimum 5 values
| Value | Count | Frequency (%) | |
| 0.37 | 1 | < 0.1% | |
| 0.52 | 1 | < 0.1% | |
| 1 | 1 | < 0.1% | |
| 1.35 | 1 | < 0.1% | |
| 1.51 | 1 | < 0.1% |
Maximum 5 values
| Value | Count | Frequency (%) | |
| 374.75 | 1 | < 0.1% | |
| 175.49 | 1 | < 0.1% | |
| 130.68 | 1 | < 0.1% | |
| 101.01 | 1 | < 0.1% | |
| 100.85 | 1 | < 0.1% |
dj2weeksBefore
Numeric
| Distinct count | 1842 |
|---|---|
| Unique (%) | 55.3% |
| Missing (%) | 0.0% |
| Missing (n) | 0 |
| Infinite (%) | 0.0% |
| Infinite (n) | 0 |
| Mean | 12046.48373 |
|---|---|
| Minimum | 5032.94 |
| Maximum | 26828.39 |
| Zeros (%) | 0.0% |
Quantile statistics
| Minimum | 5032.94 |
|---|---|
| 5-th percentile | 6593.235 |
| Q1 | 9323.15 |
| Median | 10711.385 |
| Q3 | 13577.3 |
| 95-th percentile | 22371.3135 |
| Maximum | 26828.39 |
| Range | 21795.45 |
| Interquartile range | 4254.15 |
Descriptive statistics
| Standard deviation | 4466.449885 |
|---|---|
| Coef of variation | 0.370767934 |
| Kurtosis | 1.470803936 |
| Mean | 12046.48373 |
| MAD | 3370.453536 |
| Skewness | 1.302349067 |
| Sum | 40114790.83 |
| Variance | 19949174.58 |
| Memory size | 26.1 KiB |
Histogram with fixed size bins (bins=50)
Histogram with variable size bins (bins=[ 5032.94 5478.94 5868.295 5879.765 6071.49 ... 24129.325 25397.915 25973.025 26008.365 26828.39 ], "bayesian blocks" binning strategy used)
| Value | Count | Frequency (%) | |
| 10516.48 | 9 | 0.3% | |
| 11008.17 | 8 | 0.2% | |
| 5877.36 | 8 | 0.2% | |
| 10696.08 | 8 | 0.2% | |
| 9314.28 | 7 | 0.2% | |
| 7683.24 | 7 | 0.2% | |
| 25146.39 | 7 | 0.2% | |
| 17827.75 | 7 | 0.2% | |
| 5921.67 | 7 | 0.2% | |
| 10788.7 | 7 | 0.2% | |
| Other values (1832) | 3255 | 97.7% |
Minimum 5 values
| Value | Count | Frequency (%) | |
| 5032.94 | 1 | < 0.1% | |
| 5130.13 | 2 | 0.1% | |
| 5192.27 | 1 | < 0.1% | |
| 5304.98 | 1 | < 0.1% | |
| 5459.61 | 1 | < 0.1% |
Maximum 5 values
| Value | Count | Frequency (%) | |
| 26828.39 | 2 | 0.1% | |
| 26627.48 | 2 | 0.1% | |
| 26616.71 | 1 | < 0.1% | |
| 26439.93 | 2 | 0.1% | |
| 26405.76 | 2 | 0.1% |
egc
Boolean
| Distinct count | 2 |
|---|---|
| Unique (%) | 0.1% |
| Missing (%) | 0.0% |
| Missing (n) | 0 |
| False | |
|---|---|
| True |
| Value | Count | Frequency (%) | |
| False | 2586 | 77.7% | |
| True | 744 | 22.3% |
exchange
Categorical
| Distinct count | 3 |
|---|---|
| Unique (%) | 0.1% |
| Missing (%) | 0.0% |
| Missing (n) | 0 |
| NASDQ | |
|---|---|
| NYSE | |
| AMEX | 67 |
| Value | Count | Frequency (%) | |
| NASDQ | 2368 | 71.1% | |
| NYSE | 895 | 26.9% | |
| AMEX | 67 | 2.0% |
| Max length | 5 |
|---|---|
| Mean length | 4.711111111 |
| Min length | 4 |
| Contains chars | True |
| Contains digits | False |
| Contains spaces | False |
| Contains non-words | False |
highTech
Boolean
| Distinct count | 2 |
|---|---|
| Unique (%) | 0.1% |
| Missing (%) | 0.0% |
| Missing (n) | 0 |
| True | |
|---|---|
| False |
| Value | Count | Frequency (%) | |
| True | 1805 | 54.2% | |
| False | 1525 | 45.8% |
html
Boolean
| Distinct count | 2 |
|---|---|
| Unique (%) | 0.1% |
| Missing (%) | 0.0% |
| Missing (n) | 0 |
| True | |
|---|---|
| False |
| Value | Count | Frequency (%) | |
| True | 1957 | 58.8% | |
| False | 1373 | 41.2% |
industryFF12
Categorical
| Distinct count | 12 |
|---|---|
| Unique (%) | 0.4% |
| Missing (%) | 0.0% |
| Missing (n) | 0 |
| Business Equipment -- Computers, Software, and Electronic Equipment | |
|---|---|
| Healthcare, Medical Equipment, and Drugs | |
| Finance | |
| Other values (9) |
| Value | Count | Frequency (%) | |
| Business Equipment -- Computers, Software, and Electronic Equipment | 945 | 28.4% | |
| Healthcare, Medical Equipment, and Drugs | 621 | 18.6% | |
| Finance | 483 | 14.5% | |
| Other | 462 | 13.9% | |
| Wholesale, Retail, and Some Services (Laundries, Repair Shops) | 271 | 8.1% | |
| Manufacturing -- Machinery, Trucks, Planes, Off Furn, Paper, Com Printing | 142 | 4.3% | |
| Telephone and Television Transmission | 130 | 3.9% | |
| Oil, Gas, and Coal Extraction and Products | 89 | 2.7% | |
| Consumer NonDurables -- Food, Tobacco, Textiles, Apparel, Leather, Toys | 83 | 2.5% | |
| Consumer Durables -- Cars, TV's, Furniture, Household Appliances | 39 | 1.2% | |
| Other values (2) | 65 | 2.0% |
| Max length | 73 |
|---|---|
| Mean length | 41.83663664 |
| Min length | 5 |
| Contains chars | True |
| Contains digits | False |
| Contains spaces | True |
| Contains non-words | True |
industryFF48
Categorical
| Distinct count | 48 |
|---|---|
| Unique (%) | 1.4% |
| Missing (%) | 0.0% |
| Missing (n) | 0 |
| Business Services | |
|---|---|
| Pharmaceutical Products | |
| Trading | 221 |
| Other values (45) |
| Value | Count | Frequency (%) | |
| Business Services | 845 | 25.4% | |
| Pharmaceutical Products | 409 | 12.3% | |
| Trading | 221 | 6.6% | |
| Electronic Equipment | 190 | 5.7% | |
| Retail | 158 | 4.7% | |
| Banking | 145 | 4.4% | |
| Medical Equipment | 138 | 4.1% | |
| Communication | 130 | 3.9% | |
| Computers | 108 | 3.2% | |
| Petroleum and Natural Gas | 84 | 2.5% | |
| Other values (38) | 902 | 27.1% |
| Max length | 40 |
|---|---|
| Mean length | 15.38048048 |
| Min length | 4 |
| Contains chars | True |
| Contains digits | False |
| Contains spaces | True |
| Contains non-words | True |
industryFF5
Categorical
| Distinct count | 5 |
|---|---|
| Unique (%) | 0.2% |
| Missing (%) | 0.0% |
| Missing (n) | 0 |
| Business Equipment, Telephone and Television Transmission | |
|---|---|
| Other | |
| Healthcare, Medical Equipment, and Drugs | |
| Other values (2) |
| Value | Count | Frequency (%) | |
| Business Equipment, Telephone and Television Transmission | 1122 | 33.7% | |
| Other | 898 | 27.0% | |
| Healthcare, Medical Equipment, and Drugs | 621 | 18.6% | |
| Consumer Durables, NonDurables, Wholesale, Retail, and Some Services (Laundries, Repair Shops) | 393 | 11.8% | |
| Manufacturing, Energy, and Utilities | 296 | 8.9% |
| Max length | 94 |
|---|---|
| Mean length | 42.30690691 |
| Min length | 5 |
| Contains chars | True |
| Contains digits | False |
| Contains spaces | True |
| Contains non-words | True |
investmentReceived
Numeric
| Distinct count | 1725 |
|---|---|
| Unique (%) | 51.8% |
| Missing (%) | 45.0% |
| Missing (n) | 1500 |
| Infinite (%) | 0.0% |
| Infinite (n) | 0 |
| Mean | 171295.1371 |
|---|---|
| Minimum | -14574.7 |
| Maximum | 37605000 |
| Zeros (%) | 0.0% |
Quantile statistics
| Minimum | -14574.7 |
|---|---|
| 5-th percentile | 5499.9 |
| Q1 | 31198 |
| Median | 70982.05 |
| Q3 | 146996 |
| 95-th percentile | 540129.845 |
| Maximum | 37605000 |
| Range | 37619574.7 |
| Interquartile range | 115798 |
Descriptive statistics
| Standard deviation | 928568.3849 |
|---|---|
| Coef of variation | 5.420868336 |
| Kurtosis | 1446.623104 |
| Mean | 171295.1371 |
| MAD | 173809.6285 |
| Skewness | 36.1068583 |
| Sum | 313470100.9 |
| Variance | 8.622392454e+11 |
| Memory size | 26.1 KiB |
Histogram with fixed size bins (bins=50)
| Value | Count | Frequency (%) | |
| 10000 | 8 | 0.2% | |
| 15000 | 6 | 0.2% | |
| 50000 | 6 | 0.2% | |
| 25000 | 6 | 0.2% | |
| 20000 | 6 | 0.2% | |
| 40000 | 5 | 0.2% | |
| 4000 | 4 | 0.1% | |
| 150000 | 4 | 0.1% | |
| 3000 | 3 | 0.1% | |
| 3500 | 3 | 0.1% | |
| Other values (1714) | 1779 | 53.4% | |
| (Missing) | 1500 | 45.0% |
Minimum 5 values
| Value | Count | Frequency (%) | |
| -14574.7 | 1 | < 0.1% | |
| 50 | 1 | < 0.1% | |
| 100 | 1 | < 0.1% | |
| 140 | 1 | < 0.1% | |
| 150 | 1 | < 0.1% |
Maximum 5 values
| Value | Count | Frequency (%) | |
| 37605000 | 1 | < 0.1% | |
| 4654274.1 | 1 | < 0.1% | |
| 4005520 | 1 | < 0.1% | |
| 3882175 | 1 | < 0.1% | |
| 3019984 | 1 | < 0.1% |
ipoSize
Highly correlated
This variable is highly correlated with amountOnProspectus and should be ignored for analysis
| Correlation | 0.9926927282 |
|---|
issuer
Categorical, Unique
| First 5 values |
|---|
| 012 Smile.Communications Ltd |
| 1-800 Contacts Inc |
| 1-800-Flowers.com Inc |
| 1347 Property Insurance Hldgs |
| 21st Century Holding Co |
| Last 5 values |
|---|
| uBID Inc |
| uniQure BV |
| vTv Therapeutics Inc |
| webMethods Inc |
| zulily inc |
First 5 values
| Value | Count | Frequency (%) | |
| 012 Smile.Communications Ltd | 1 | < 0.1% | |
| 1-800 Contacts Inc | 1 | < 0.1% | |
| 1-800-Flowers.com Inc | 1 | < 0.1% | |
| 1347 Property Insurance Hldgs | 1 | < 0.1% | |
| 21st Century Holding Co | 1 | < 0.1% |
Last 5 values
| Value | Count | Frequency (%) | |
| zulily inc | 1 | < 0.1% | |
| webMethods Inc | 1 | < 0.1% | |
| vTv Therapeutics Inc | 1 | < 0.1% | |
| uniQure BV | 1 | < 0.1% | |
| uBID Inc | 1 | < 0.1% |
leverage
Numeric
| Distinct count | 2318 |
|---|---|
| Unique (%) | 69.6% |
| Missing (%) | 11.3% |
| Missing (n) | 376 |
| Infinite (%) | 0.0% |
| Infinite (n) | 0 |
| Mean | 0.195876729 |
|---|---|
| Minimum | 0 |
| Maximum | 3.18867121 |
| Zeros (%) | 19.0% |
Quantile statistics
| Minimum | 0 |
|---|---|
| 5-th percentile | 0 |
| Q1 | 0.001835065222 |
| Median | 0.07079009682 |
| Q3 | 0.3300674044 |
| 95-th percentile | 0.7080074335 |
| Maximum | 3.18867121 |
| Range | 3.18867121 |
| Interquartile range | 0.3282323391 |
Descriptive statistics
| Standard deviation | 0.2665436701 |
|---|---|
| Coef of variation | 1.36077252 |
| Kurtosis | 11.13989757 |
| Mean | 0.195876729 |
| MAD | 0.2035492467 |
| Skewness | 2.342995877 |
| Sum | 578.6198575 |
| Variance | 0.07104552806 |
| Memory size | 26.1 KiB |
Histogram with fixed size bins (bins=50)
| Value | Count | Frequency (%) | |
| 0 | 633 | 19.0% | |
| 0.3492782096 | 4 | 0.1% | |
| 0.05549752582 | 2 | 0.1% | |
| 0.005779467681 | 2 | 0.1% | |
| 0.03178627145 | 1 | < 0.1% | |
| 0.1809995475 | 1 | < 0.1% | |
| 0.2588032093 | 1 | < 0.1% | |
| 0.6026772454 | 1 | < 0.1% | |
| 0.0960390804 | 1 | < 0.1% | |
| 0.2543768717 | 1 | < 0.1% | |
| Other values (2307) | 2307 | 69.3% | |
| (Missing) | 376 | 11.3% |
Minimum 5 values
| Value | Count | Frequency (%) | |
| 0 | 633 | 19.0% | |
| 7.207531871e-05 | 1 | < 0.1% | |
| 8.657098512e-05 | 1 | < 0.1% | |
| 9.279737693e-05 | 1 | < 0.1% | |
| 0.0001145278589 | 1 | < 0.1% |
Maximum 5 values
| Value | Count | Frequency (%) | |
| 3.18867121 | 1 | < 0.1% | |
| 2.514579932 | 1 | < 0.1% | |
| 2.177065486 | 1 | < 0.1% | |
| 1.930307467 | 1 | < 0.1% | |
| 1.745177681 | 1 | < 0.1% |
managementFee
Highly correlated
This variable is highly correlated with ipoSize and should be ignored for analysis
| Correlation | 0.9167136414 |
|---|
manager
Categorical
| Distinct count | 1487 |
|---|---|
| Unique (%) | 44.7% |
| Missing (%) | 0.0% |
| Missing (n) | 0 |
| Goldman Sachs & Co | 126 |
|---|---|
| Merrill Lynch & Co Inc | 94 |
| CS First Boston Corp | 85 |
| Other values (1484) |
| Value | Count | Frequency (%) | |
| Goldman Sachs & Co | 126 | 3.8% | |
| Merrill Lynch & Co Inc | 94 | 2.8% | |
| CS First Boston Corp | 85 | 2.6% | |
| Morgan Stanley Dean Witter & Co | 73 | 2.2% | |
| Donaldson Lufkin & Jenrette Inc | 68 | 2.0% | |
| Lehman Brothers | 63 | 1.9% | |
| Hambrecht & Quist Inc | 45 | 1.4% | |
| Bear Stearns & Co Inc | 44 | 1.3% | |
| BancBoston Robertson Stephens Inc | 34 | 1.0% | |
| Friedman Billings Ramsey Group | 34 | 1.0% | |
| Other values (1477) | 2664 | 80.0% |
| Max length | 413 |
|---|---|
| Mean length | 43.19189189 |
| Min length | 4 |
| Contains chars | True |
| Contains digits | True |
| Contains spaces | True |
| Contains non-words | True |
nasdaq2weeksBefore
Highly correlated
This variable is highly correlated with dj2weeksBefore and should be ignored for analysis
| Correlation | 0.9299237865 |
|---|
netIncome
Numeric
| Distinct count | 2878 |
|---|---|
| Unique (%) | 86.4% |
| Missing (%) | 11.8% |
| Missing (n) | 392 |
| Infinite (%) | 0.0% |
| Infinite (n) | 0 |
| Mean | 0.8552797822 |
|---|---|
| Minimum | -4616 |
| Maximum | 6172 |
| Zeros (%) | < 0.1% |
Quantile statistics
| Minimum | -4616 |
|---|---|
| 5-th percentile | -82.17835 |
| Q1 | -22.08 |
| Median | -1.0535 |
| Q3 | 10.855 |
| 95-th percentile | 97.7448 |
| Maximum | 6172 |
| Range | 10788 |
| Interquartile range | 32.935 |
Descriptive statistics
| Standard deviation | 201.8411644 |
|---|---|
| Coef of variation | 235.9943127 |
| Kurtosis | 436.7384373 |
| Mean | 0.8552797822 |
| MAD | 49.52839668 |
| Skewness | 5.178382772 |
| Sum | 2512.812 |
| Variance | 40739.85564 |
| Memory size | 26.1 KiB |
Histogram with fixed size bins (bins=50)
| Value | Count | Frequency (%) | |
| 357 | 4 | 0.1% | |
| 0.546 | 2 | 0.1% | |
| 4.332 | 2 | 0.1% | |
| -4.107 | 2 | 0.1% | |
| -28.8 | 2 | 0.1% | |
| 0.447 | 2 | 0.1% | |
| -27.59 | 2 | 0.1% | |
| 2.645 | 2 | 0.1% | |
| 7.272 | 2 | 0.1% | |
| 7.372 | 2 | 0.1% | |
| Other values (2867) | 2916 | 87.6% | |
| (Missing) | 392 | 11.8% |
Minimum 5 values
| Value | Count | Frequency (%) | |
| -4616 | 1 | < 0.1% | |
| -3445.066 | 1 | < 0.1% | |
| -1497.5 | 1 | < 0.1% | |
| -1481 | 1 | < 0.1% | |
| -1179 | 1 | < 0.1% |
Maximum 5 values
| Value | Count | Frequency (%) | |
| 6172 | 1 | < 0.1% | |
| 2465 | 1 | < 0.1% | |
| 2109 | 1 | < 0.1% | |
| 1820 | 1 | < 0.1% | |
| 1177 | 1 | < 0.1% |
nExecutives
Numeric
| Distinct count | 45 |
|---|---|
| Unique (%) | 1.4% |
| Missing (%) | 42.9% |
| Missing (n) | 1429 |
| Infinite (%) | 0.0% |
| Infinite (n) | 0 |
| Mean | 11.21778012 |
|---|---|
| Minimum | 1 |
| Maximum | 89 |
| Zeros (%) | 0.0% |
Quantile statistics
| Minimum | 1 |
|---|---|
| 5-th percentile | 3 |
| Q1 | 6 |
| Median | 11 |
| Q3 | 15 |
| 95-th percentile | 22 |
| Maximum | 89 |
| Range | 88 |
| Interquartile range | 9 |
Descriptive statistics
| Standard deviation | 6.626098282 |
|---|---|
| Coef of variation | 0.5906782102 |
| Kurtosis | 12.95767119 |
| Mean | 11.21778012 |
| MAD | 4.91980383 |
| Skewness | 1.957182811 |
| Sum | 21325 |
| Variance | 43.90517844 |
| Memory size | 26.1 KiB |
Histogram with fixed size bins (bins=45)
| Value | Count | Frequency (%) | |
| 5 | 269 | 8.1% | |
| 12 | 136 | 4.1% | |
| 11 | 131 | 3.9% | |
| 13 | 125 | 3.8% | |
| 14 | 121 | 3.6% | |
| 10 | 115 | 3.5% | |
| 9 | 94 | 2.8% | |
| 8 | 90 | 2.7% | |
| 16 | 82 | 2.5% | |
| 15 | 82 | 2.5% | |
| Other values (34) | 656 | 19.7% | |
| (Missing) | 1429 | 42.9% |
Minimum 5 values
| Value | Count | Frequency (%) | |
| 1 | 38 | 1.1% | |
| 2 | 50 | 1.5% | |
| 3 | 42 | 1.3% | |
| 4 | 61 | 1.8% | |
| 5 | 269 | 8.1% |
Maximum 5 values
| Value | Count | Frequency (%) | |
| 89 | 1 | < 0.1% | |
| 53 | 1 | < 0.1% | |
| 52 | 1 | < 0.1% | |
| 50 | 1 | < 0.1% | |
| 48 | 1 | < 0.1% |
nPatents
Numeric
| Distinct count | 92 |
|---|---|
| Unique (%) | 2.8% |
| Missing (%) | 0.0% |
| Missing (n) | 0 |
| Infinite (%) | 0.0% |
| Infinite (n) | 0 |
| Mean | 5.376276276 |
|---|---|
| Minimum | 0 |
| Maximum | 2098 |
| Zeros (%) | 74.8% |
Quantile statistics
| Minimum | 0 |
|---|---|
| 5-th percentile | 0 |
| Q1 | 0 |
| Median | 0 |
| Q3 | 1 |
| 95-th percentile | 18 |
| Maximum | 2098 |
| Range | 2098 |
| Interquartile range | 1 |
Descriptive statistics
| Standard deviation | 48.65286311 |
|---|---|
| Coef of variation | 9.049546678 |
| Kurtosis | 1100.331268 |
| Mean | 5.376276276 |
| MAD | 8.894594414 |
| Skewness | 29.0217917 |
| Sum | 17903 |
| Variance | 2367.101089 |
| Memory size | 26.1 KiB |
Histogram with fixed size bins (bins=50)
Histogram with variable size bins (bins=[0.000e+00 5.000e-01 1.500e+00 3.500e+00 9.500e+00 ... 4.850e+01 7.900e+01 1.315e+02 5.500e+02 2.098e+03], "bayesian blocks" binning strategy used)
| Value | Count | Frequency (%) | |
| 0 | 2491 | 74.8% | |
| 1 | 192 | 5.8% | |
| 2 | 95 | 2.9% | |
| 3 | 78 | 2.3% | |
| 5 | 42 | 1.3% | |
| 4 | 40 | 1.2% | |
| 6 | 37 | 1.1% | |
| 7 | 29 | 0.9% | |
| 9 | 27 | 0.8% | |
| 8 | 23 | 0.7% | |
| Other values (82) | 276 | 8.3% |
Minimum 5 values
| Value | Count | Frequency (%) | |
| 0 | 2491 | 74.8% | |
| 1 | 192 | 5.8% | |
| 2 | 95 | 2.9% | |
| 3 | 78 | 2.3% | |
| 4 | 40 | 1.2% |
Maximum 5 values
| Value | Count | Frequency (%) | |
| 2098 | 1 | < 0.1% | |
| 892 | 1 | < 0.1% | |
| 802 | 1 | < 0.1% | |
| 601 | 1 | < 0.1% | |
| 499 | 1 | < 0.1% |
nUnderwriters
Numeric
| Distinct count | 55 |
|---|---|
| Unique (%) | 1.7% |
| Missing (%) | 0.0% |
| Missing (n) | 0 |
| Infinite (%) | 0.0% |
| Infinite (n) | 0 |
| Mean | 10.42462462 |
|---|---|
| Minimum | 1 |
| Maximum | 83 |
| Zeros (%) | 0.0% |
Quantile statistics
| Minimum | 1 |
|---|---|
| 5-th percentile | 2 |
| Q1 | 4 |
| Median | 7 |
| Q3 | 15 |
| 95-th percentile | 27 |
| Maximum | 83 |
| Range | 82 |
| Interquartile range | 11 |
Descriptive statistics
| Standard deviation | 8.630869813 |
|---|---|
| Coef of variation | 0.8279309926 |
| Kurtosis | 4.84455363 |
| Mean | 10.42462462 |
| MAD | 6.6483442 |
| Skewness | 1.768302383 |
| Sum | 34714 |
| Variance | 74.49191372 |
| Memory size | 26.1 KiB |
Histogram with fixed size bins (bins=50)
Histogram with variable size bins (bins=[ 1. 2.5 3.5 4.5 5.5 ... 26.5 28.5 38.5 50.5 83. ], "bayesian blocks" binning strategy used)
| Value | Count | Frequency (%) | |
| 4 | 464 | 13.9% | |
| 5 | 314 | 9.4% | |
| 3 | 240 | 7.2% | |
| 6 | 238 | 7.1% | |
| 2 | 186 | 5.6% | |
| 7 | 176 | 5.3% | |
| 8 | 142 | 4.3% | |
| 9 | 125 | 3.8% | |
| 10 | 112 | 3.4% | |
| 13 | 103 | 3.1% | |
| Other values (45) | 1230 | 36.9% |
Minimum 5 values
| Value | Count | Frequency (%) | |
| 1 | 86 | 2.6% | |
| 2 | 186 | 5.6% | |
| 3 | 240 | 7.2% | |
| 4 | 464 | 13.9% | |
| 5 | 314 | 9.4% |
Maximum 5 values
| Value | Count | Frequency (%) | |
| 83 | 1 | < 0.1% | |
| 72 | 1 | < 0.1% | |
| 63 | 1 | < 0.1% | |
| 58 | 1 | < 0.1% | |
| 55 | 1 | < 0.1% |
nVCs
Numeric
| Distinct count | 31 |
|---|---|
| Unique (%) | 0.9% |
| Missing (%) | 39.9% |
| Missing (n) | 1329 |
| Infinite (%) | 0.0% |
| Infinite (n) | 0 |
| Mean | 7.274862569 |
|---|---|
| Minimum | 1 |
| Maximum | 32 |
| Zeros (%) | 0.0% |
Quantile statistics
| Minimum | 1 |
|---|---|
| 5-th percentile | 1 |
| Q1 | 3 |
| Median | 6 |
| Q3 | 10 |
| 95-th percentile | 18 |
| Maximum | 32 |
| Range | 31 |
| Interquartile range | 7 |
Descriptive statistics
| Standard deviation | 5.326388344 |
|---|---|
| Coef of variation | 0.7321634318 |
| Kurtosis | 1.06302519 |
| Mean | 7.274862569 |
| MAD | 4.267180752 |
| Skewness | 1.050645801 |
| Sum | 14557 |
| Variance | 28.37041279 |
| Memory size | 26.1 KiB |
Histogram with fixed size bins (bins=31)
| Value | Count | Frequency (%) | |
| 1 | 216 | 6.5% | |
| 2 | 194 | 5.8% | |
| 3 | 192 | 5.8% | |
| 4 | 173 | 5.2% | |
| 5 | 134 | 4.0% | |
| 7 | 133 | 4.0% | |
| 6 | 127 | 3.8% | |
| 9 | 125 | 3.8% | |
| 8 | 125 | 3.8% | |
| 10 | 107 | 3.2% | |
| Other values (20) | 475 | 14.3% | |
| (Missing) | 1329 | 39.9% |
Minimum 5 values
| Value | Count | Frequency (%) | |
| 1 | 216 | 6.5% | |
| 2 | 194 | 5.8% | |
| 3 | 192 | 5.8% | |
| 4 | 173 | 5.2% | |
| 5 | 134 | 4.0% |
Maximum 5 values
| Value | Count | Frequency (%) | |
| 32 | 2 | 0.1% | |
| 31 | 1 | < 0.1% | |
| 30 | 2 | 0.1% | |
| 28 | 1 | < 0.1% | |
| 26 | 2 | 0.1% |
offerPrice
Numeric
| Distinct count | 117 |
|---|---|
| Unique (%) | 3.5% |
| Missing (%) | 0.0% |
| Missing (n) | 0 |
| Infinite (%) | 0.0% |
| Infinite (n) | 0 |
| Mean | 14.44826126 |
|---|---|
| Minimum | 1 |
| Maximum | 97 |
| Zeros (%) | 0.0% |
Quantile statistics
| Minimum | 1 |
|---|---|
| 5-th percentile | 6 |
| Q1 | 10.5 |
| Median | 14 |
| Q3 | 17 |
| 95-th percentile | 24 |
| Maximum | 97 |
| Range | 96 |
| Interquartile range | 6.5 |
Descriptive statistics
| Standard deviation | 6.225451429 |
|---|---|
| Coef of variation | 0.4308789353 |
| Kurtosis | 26.92075874 |
| Mean | 14.44826126 |
| MAD | 4.300797549 |
| Skewness | 3.031780348 |
| Sum | 48112.71 |
| Variance | 38.7562455 |
| Memory size | 26.1 KiB |
Histogram with fixed size bins (bins=50)
Histogram with variable size bins (bins=[ 1. 3.75 4.125 4.875 5.094 ... 26.25 30.5 36.25 53. 97. ], "bayesian blocks" binning strategy used)
| Value | Count | Frequency (%) | |
| 15 | 271 | 8.1% | |
| 12 | 263 | 7.9% | |
| 14 | 229 | 6.9% | |
| 16 | 222 | 6.7% | |
| 10 | 205 | 6.2% | |
| 13 | 192 | 5.8% | |
| 17 | 173 | 5.2% | |
| 11 | 165 | 5.0% | |
| 18 | 163 | 4.9% | |
| 8 | 129 | 3.9% | |
| Other values (107) | 1318 | 39.6% |
Minimum 5 values
| Value | Count | Frequency (%) | |
| 1 | 1 | < 0.1% | |
| 3.25 | 2 | 0.1% | |
| 3.5 | 1 | < 0.1% | |
| 4 | 16 | 0.5% | |
| 4.25 | 1 | < 0.1% |
Maximum 5 values
| Value | Count | Frequency (%) | |
| 97 | 1 | < 0.1% | |
| 91 | 1 | < 0.1% | |
| 85 | 1 | < 0.1% | |
| 70.41 | 1 | < 0.1% | |
| 65 | 1 | < 0.1% |
patRatio
Numeric
| Distinct count | 799 |
|---|---|
| Unique (%) | 24.0% |
| Missing (%) | 38.6% |
| Missing (n) | 1287 |
| Infinite (%) | 0.0% |
| Infinite (n) | 0 |
| Mean | 0.4454759403 |
|---|---|
| Minimum | 0 |
| Maximum | 2 |
| Zeros (%) | 8.0% |
Quantile statistics
| Minimum | 0 |
|---|---|
| 5-th percentile | 0 |
| Q1 | 0.25243195 |
| Median | 0.4444444444 |
| Q3 | 0.6202039825 |
| 95-th percentile | 1 |
| Maximum | 2 |
| Range | 2 |
| Interquartile range | 0.3677720325 |
Descriptive statistics
| Standard deviation | 0.2851204543 |
|---|---|
| Coef of variation | 0.6400355856 |
| Kurtosis | 1.048845793 |
| Mean | 0.4454759403 |
| MAD | 0.2233515281 |
| Skewness | 0.4538845919 |
| Sum | 910.1073459 |
| Variance | 0.08129367345 |
| Memory size | 26.1 KiB |
Histogram with fixed size bins (bins=50)
| Value | Count | Frequency (%) | |
| 0 | 266 | 8.0% | |
| 0.5 | 134 | 4.0% | |
| 1 | 125 | 3.8% | |
| 0.3333333333 | 56 | 1.7% | |
| 0.6666666667 | 51 | 1.5% | |
| 0.25 | 31 | 0.9% | |
| 0.4 | 27 | 0.8% | |
| 0.6 | 20 | 0.6% | |
| 0.4444444444 | 19 | 0.6% | |
| 0.2857142857 | 18 | 0.5% | |
| Other values (788) | 1296 | 38.9% | |
| (Missing) | 1287 | 38.6% |
Minimum 5 values
| Value | Count | Frequency (%) | |
| 0 | 266 | 8.0% | |
| 0.02608695652 | 1 | < 0.1% | |
| 0.03846153846 | 1 | < 0.1% | |
| 0.04761904762 | 1 | < 0.1% | |
| 0.05263157895 | 1 | < 0.1% |
Maximum 5 values
| Value | Count | Frequency (%) | |
| 2 | 4 | 0.1% | |
| 1.666666667 | 1 | < 0.1% | |
| 1.2 | 1 | < 0.1% | |
| 1.090909091 | 1 | < 0.1% | |
| 1.03125 | 1 | < 0.1% |
pe
Boolean
| Distinct count | 2 |
|---|---|
| Unique (%) | 0.1% |
| Missing (%) | 0.0% |
| Missing (n) | 0 |
| False | |
|---|---|
| True |
| Value | Count | Frequency (%) | |
| False | 2650 | 79.6% | |
| True | 680 | 20.4% |
priorFinancing
Numeric
| Distinct count | 1706 |
|---|---|
| Unique (%) | 51.2% |
| Missing (%) | 42.6% |
| Missing (n) | 1417 |
| Infinite (%) | 0.0% |
| Infinite (n) | 0 |
| Mean | 128733.6259 |
|---|---|
| Minimum | 0 |
| Maximum | 5081687 |
| Zeros (%) | 3.4% |
Quantile statistics
| Minimum | 0 |
|---|---|
| 5-th percentile | 0 |
| Q1 | 23800.1 |
| Median | 62036 |
| Q3 | 133861.8 |
| 95-th percentile | 437296.4 |
| Maximum | 5081687 |
| Range | 5081687 |
| Interquartile range | 110061.7 |
Descriptive statistics
| Standard deviation | 265960.3259 |
|---|---|
| Coef of variation | 2.065974014 |
| Kurtosis | 121.7197935 |
| Mean | 128733.6259 |
| MAD | 120350.6287 |
| Skewness | 8.766243918 |
| Sum | 246267426.4 |
| Variance | 7.073489496e+10 |
| Memory size | 26.1 KiB |
Histogram with fixed size bins (bins=50)
| Value | Count | Frequency (%) | |
| 0 | 113 | 3.4% | |
| 10000 | 8 | 0.2% | |
| 20000 | 6 | 0.2% | |
| 25000 | 6 | 0.2% | |
| 15000 | 5 | 0.2% | |
| 50000 | 5 | 0.2% | |
| 4000 | 4 | 0.1% | |
| 40000 | 4 | 0.1% | |
| 65000 | 4 | 0.1% | |
| 5000 | 4 | 0.1% | |
| Other values (1695) | 1754 | 52.7% | |
| (Missing) | 1417 | 42.6% |
Minimum 5 values
| Value | Count | Frequency (%) | |
| 0 | 113 | 3.4% | |
| 50 | 1 | < 0.1% | |
| 100 | 1 | < 0.1% | |
| 140 | 1 | < 0.1% | |
| 150 | 1 | < 0.1% |
Maximum 5 values
| Value | Count | Frequency (%) | |
| 5081687 | 1 | < 0.1% | |
| 4654274.1 | 1 | < 0.1% | |
| 2423771.6 | 1 | < 0.1% | |
| 2313000 | 1 | < 0.1% | |
| 2300000 | 1 | < 0.1% |
prominence
Boolean
| Distinct count | 2 |
|---|---|
| Unique (%) | 0.1% |
| Missing (%) | 0.0% |
| Missing (n) | 0 |
| 0 | |
|---|---|
| 1 |
| Value | Count | Frequency (%) | |
| 0 | 2386 | 71.7% | |
| 1 | 944 | 28.3% |
reputationAvg
Numeric
| Distinct count | 2034 |
|---|---|
| Unique (%) | 61.1% |
| Missing (%) | 0.0% |
| Missing (n) | 0 |
| Infinite (%) | 0.0% |
| Infinite (n) | 0 |
| Mean | 5.56139949 |
|---|---|
| Minimum | 0 |
| Maximum | 12.00133333 |
| Zeros (%) | 1.3% |
Quantile statistics
| Minimum | 0 |
|---|---|
| 5-th percentile | 2.12525 |
| Q1 | 4.333916667 |
| Median | 5.992472222 |
| Q3 | 6.860875882 |
| 95-th percentile | 8.205216667 |
| Maximum | 12.00133333 |
| Range | 12.00133333 |
| Interquartile range | 2.526959216 |
Descriptive statistics
| Standard deviation | 1.883080978 |
|---|---|
| Coef of variation | 0.3385984016 |
| Kurtosis | 0.1807721954 |
| Mean | 5.56139949 |
| MAD | 1.516280313 |
| Skewness | -0.5092016474 |
| Sum | 18519.4603 |
| Variance | 3.54599397 |
| Memory size | 26.1 KiB |
Histogram with fixed size bins (bins=50)
Histogram with variable size bins (bins=[ 0. 0.32146429 1.00025 1.00075 1.50020833 ... 6.80075 6.80096667 6.85814286 6.85814286 12.00133333], "bayesian blocks" binning strategy used)
| Value | Count | Frequency (%) | |
| 0 | 44 | 1.3% | |
| 7.001 | 34 | 1.0% | |
| 3.5005 | 29 | 0.9% | |
| 3.001 | 28 | 0.8% | |
| 8.001 | 28 | 0.8% | |
| 5.25075 | 23 | 0.7% | |
| 7.251 | 20 | 0.6% | |
| 4.0005 | 18 | 0.5% | |
| 6.001 | 16 | 0.5% | |
| 3.2505 | 16 | 0.5% | |
| Other values (2024) | 3074 | 92.3% |
Minimum 5 values
| Value | Count | Frequency (%) | |
| 0 | 44 | 1.3% | |
| 0.6429285714 | 1 | < 0.1% | |
| 0.667 | 2 | 0.1% | |
| 0.75025 | 1 | < 0.1% | |
| 0.8335 | 1 | < 0.1% |
Maximum 5 values
| Value | Count | Frequency (%) | |
| 12.00133333 | 1 | < 0.1% | |
| 11.668 | 1 | < 0.1% | |
| 11.25125 | 1 | < 0.1% | |
| 11.00125 | 5 | 0.2% | |
| 10.75125 | 1 | < 0.1% |
reputationLeadAvg
Numeric
| Distinct count | 183 |
|---|---|
| Unique (%) | 5.5% |
| Missing (%) | 0.0% |
| Missing (n) | 0 |
| Infinite (%) | 0.0% |
| Infinite (n) | 0 |
| Mean | 6.803184849 |
|---|---|
| Minimum | 0 |
| Maximum | 9.001 |
| Zeros (%) | 6.9% |
Quantile statistics
| Minimum | 0 |
|---|---|
| 5-th percentile | 0 |
| Q1 | 5.750666667 |
| Median | 8 |
| Q3 | 9 |
| 95-th percentile | 9.001 |
| Maximum | 9.001 |
| Range | 9.001 |
| Interquartile range | 3.249333333 |
Descriptive statistics
| Standard deviation | 2.559349271 |
|---|---|
| Coef of variation | 0.3761986963 |
| Kurtosis | 1.082484501 |
| Mean | 6.803184849 |
| MAD | 2.001956801 |
| Skewness | -1.369782885 |
| Sum | 22654.60555 |
| Variance | 6.550268691 |
| Memory size | 26.1 KiB |
Histogram with fixed size bins (bins=50)
Histogram with variable size bins (bins=[0. 0.5005 2.0005 2.2505 2.50025 ... 8.87525 8.93775 9.00025 9.00075 9.001 ], "bayesian blocks" binning strategy used)
| Value | Count | Frequency (%) | |
| 9.001 | 777 | 23.3% | |
| 8.001 | 331 | 9.9% | |
| 0 | 230 | 6.9% | |
| 7.001 | 190 | 5.7% | |
| 8.501 | 138 | 4.1% | |
| 8.75 | 130 | 3.9% | |
| 5.001 | 107 | 3.2% | |
| 6.001 | 99 | 3.0% | |
| 9 | 88 | 2.6% | |
| 3.001 | 85 | 2.6% | |
| Other values (173) | 1155 | 34.7% |
Minimum 5 values
| Value | Count | Frequency (%) | |
| 0 | 230 | 6.9% | |
| 1.001 | 7 | 0.2% | |
| 1.5 | 1 | < 0.1% | |
| 1.501 | 2 | 0.1% | |
| 2 | 3 | 0.1% |
Maximum 5 values
| Value | Count | Frequency (%) | |
| 9.001 | 777 | 23.3% | |
| 9.0005 | 6 | 0.2% | |
| 9 | 88 | 2.6% | |
| 8.8755 | 6 | 0.2% | |
| 8.875 | 27 | 0.8% |
reputationLeadMax
Numeric
| Distinct count | 44 |
|---|---|
| Unique (%) | 1.3% |
| Missing (%) | 0.0% |
| Missing (n) | 0 |
| Infinite (%) | 0.0% |
| Infinite (n) | 0 |
| Mean | 7.403908108 |
|---|---|
| Minimum | 0 |
| Maximum | 9.001 |
| Zeros (%) | 6.9% |
Quantile statistics
| Minimum | 0 |
|---|---|
| 5-th percentile | 0 |
| Q1 | 7.001 |
| Median | 8.75 |
| Q3 | 9.001 |
| 95-th percentile | 9.001 |
| Maximum | 9.001 |
| Range | 9.001 |
| Interquartile range | 2 |
Descriptive statistics
| Standard deviation | 2.56569386 |
|---|---|
| Coef of variation | 0.3465323749 |
| Kurtosis | 2.482485605 |
| Mean | 7.403908108 |
| MAD | 1.877977427 |
| Skewness | -1.878679312 |
| Sum | 24655.014 |
| Variance | 6.582784983 |
| Memory size | 26.1 KiB |
Histogram with fixed size bins (bins=44)
Histogram with variable size bins (bins=[0. 0.5005 2.0005 2.2505 2.7505 ... 8.6875 8.8125 8.9375 9.0005 9.001 ], "bayesian blocks" binning strategy used)
| Value | Count | Frequency (%) | |
| 9.001 | 1470 | 44.1% | |
| 8.001 | 412 | 12.4% | |
| 7.001 | 244 | 7.3% | |
| 0 | 230 | 6.9% | |
| 8.75 | 136 | 4.1% | |
| 5.001 | 113 | 3.4% | |
| 9 | 91 | 2.7% | |
| 6.001 | 89 | 2.7% | |
| 3.001 | 85 | 2.6% | |
| 8.501 | 77 | 2.3% | |
| Other values (34) | 383 | 11.5% |
Minimum 5 values
| Value | Count | Frequency (%) | |
| 0 | 230 | 6.9% | |
| 1.001 | 7 | 0.2% | |
| 1.5 | 1 | < 0.1% | |
| 2 | 3 | 0.1% | |
| 2.001 | 33 | 1.0% |
Maximum 5 values
| Value | Count | Frequency (%) | |
| 9.001 | 1470 | 44.1% | |
| 9 | 91 | 2.7% | |
| 8.875 | 45 | 1.4% | |
| 8.75 | 136 | 4.1% | |
| 8.625 | 6 | 0.2% |
reputationSum
Highly correlated
This variable is highly correlated with nUnderwriters and should be ignored for analysis
| Correlation | 0.9577851468 |
|---|
rf
Categorical
| Distinct count | 3058 |
|---|---|
| Unique (%) | 91.8% |
| Missing (%) | 8.2% |
| Missing (n) | 273 |
| RISK FACTORS An investment in the shares of Common Stock being offered hereby involves a high degree of risk. In addition to the other information in this Prospectus, potential purchasers should consider carefully the following risk factors in evaluating the Company, its business, and the shares of Common Stock offered hereby. This Prospectus contains certain forward-looking statements concerning certain aspects of the business of the Company. When used in this Prospectus, words such as "believe," "anticipate," "intend," "goal," "expect" and similar expressions may identify forward-looking statements. Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those contemplated in such forward-looking statements, including, without limitation, those set forth in the following risk factors and elsewhere in this Prospectus. Prospective investors are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this Prospectus. The Company undertakes no obligation to release publicly any revisions to these forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. The Company's actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors. FLUCTUATIONS IN DEMAND AND ANNUAL AND QUARTERLY OPERATING RESULTS The Company has experienced and may continue to experience significant annual and quarter-to-quarter fluctuations in its operating results. The Company's annual and quarterly operating results may fluctuate as a result of a variety of factors including: (i) customer demand, such as general economic conditions in the FPD industry, market acceptance of products of both the Company and its customers, changes in product mix, and the timing, cancellation or delay of customer orders and shipments; (ii) competition, such as competitive pressures on prices of the Company's products, as well as those of its customers, and the introduction or announcement of new products by competitors; (iii) manufacturing and operations, such as fluctuations in availability and cost of raw materials and production capacity, the transfer of equipment and personnel to the Company's new manufacturing facilities, and the hiring and training of additional staff; (iv) fluctuations in foreign currency exchange rates; (v) new product development, such as increased research, development and engineering, as well as marketing expenses associated with new product introductions and the Company's ability to introduce new products and technologies on a timely basis; (vi) sales and marketing, such as concentration of customers and discounts that may be granted to certain customers; and (vii) the cyclical nature of the capital equipment market. Because a significant portion of the Company's overhead is fixed, at least in the short-term, the Company's results of operations may be materially adversely affected if net sales decline for any reason. Further, although the Company has achieved productivity improvements in recent quarters, there can be no assurance of any future productivity improvements. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Quarterly Results of Operations. HIGHLY COMPETITIVE MARKET ENVIRONMENT Competition in the thin film coated glass for the LCD market is, and is expected to remain, intense. Several of the Company's competitors have substantially greater financial, technical, marketing and sales resources than the Company. There can be no assurance that the Company's present or future competitors will not exert increased competitive pressures on the Company. In particular, the Company may in the future experience pricing pressures as a result of a decline in industry demand, excess inventory levels, increases in industry capacity or the introduction of new technologies, and such price competition could adversely affect the Company's business, operating results, financial condition and prospects. For example, prices for much of the Company's TN thin film coated glass supplied to the LCD market declined by approximately 15% between January 1996 and June 1997. The Company is aware of plans by several competitors to increase production capacity in 1997 and 1998. Increases in industry capacity may result in intensified pricing pressures on the Company's products. The Company's competitive position also could be adversely affected by raw material price increases, which the Company may not be able to pass on to its customers but which certain of its vertically integrated current and potential competitors may be able to better absorb. To remain competitive, the Company must continue to invest in and focus upon research and development, product and process 5 6 innovation, as well as sales and customer support. There can be no assurance that the Company will be successful in such efforts or that such factors will not have a material adverse effect on the Company's business, operating results, financial condition or prospects. The Company's suppliers and/or customers could vertically integrate to manufacture the products produced by the Company. The Company's suppliers of thin glass are large, well-capitalized companies which could enter the LCD market by coating the glass they produce and supplying LCD manufacturers directly. Because glass is by far the Company's largest material cost, a manufacturer of glass desiring to enter this market could have a significant cost advantage. The Company is aware of two manufacturers of thin glass that also coat glass for the LCD market, Asahi Glass Company and Nippon Sheet Glass. Further, companies that manufacture equipment for coating thin film glass could begin producing thin film coated glass. One such equipment manufacturer, Balzers Process Systems/Leybold AG, is an investor in a Chinese joint venture which produces thin film coated glass. In addition, certain LCD manufacturers have vertically integrated to coat glass for LCDs and further vertical integration into certain areas of LCD manufacturing is expected. Any such vertical integration could have a material adverse effect on the Company's business, operating results, financial condition and prospects. See "Business -- Competition.UNCERTAINTIES RELATED TO COATING EQUIPMENT BUSINESS Until recently, the Company's business has been focused almost exclusively on the sale of thin film coated glass. Although the Company expects to continue to produce and sell thin film coated glass to the world FPD market, the Company's future growth potential depends in part upon the Company's success in the market for thin film systems. Sales of the Company's thin film systems depend in large part upon a prospective customer's decision to increase manufacturing capabilities and capacities or to respond to consumer demands for greater cost efficiencies by upgrading or expanding existing manufacturing facilities or constructing new manufacturing facilities, all of which typically involve significant capital expenditures. Further, customers for the Company's thin film coated glass could decide to purchase thin film systems to bring some or all of their thin film coated glass requirements in-house, thus adversely affecting sales of thin film coated glass by the Company to such customers. The Company is currently building systems for two such customers. Systems sales also may be affected by changes in the market for different types of displays and customers' decisions to begin internal production of glass coatings rather than rely on an outside supplier such as the Company. The sales cycle of the Company's thin film coating systems is lengthy due to the customer's evaluation of its ordered system and completion of any necessary upgrades, expansion or construction of facilities. The Company may expend substantial funds and management effort during the sales cycle. In addition, the cyclicality and rapid technological change in the thin film coated glass industry may cause prospective customers to postpone decisions regarding major capital expenditures, such as the Company's systems. With respect to the development of its systems business, the Company is subject to the risks inherent in the operation or the development of a new business, including risks associated with attracting and servicing a customer base, manufacturing products in a cost-effective and profitable manner, managing the expansion of a business operation and attracting and retaining qualified engineering, manufacturing and marketing personnel. Because of rapid changes in the FPD market, which are expected to continue, it is difficult to predict whether or where future growth may occur, or at what rate certain aspects will grow, if at all. Further, changes in technology could render the Company's systems less attractive. If the market for the Company's thin film systems fails to grow, or grows more slowly than anticipated, the Company's business, operating results, financial condition and prospects could be materially adversely affected. See "Business -- Competition.INTERNATIONAL MARKETS Sales to international customers represented approximately 84%, 82% and 83% of the Company's gross sales in fiscal 1995, 1996 and 1997, respectively. The Company's principal international markets are China (including Hong Kong), Korea, Japan, Taiwan and the Netherlands. The Company believes that international sales will continue to represent a significant portion of its gross sales, and that it will be subject to the normal risks of conducting business internationally, including unexpected changes in regulatory requirements, imposition of government controls, political and economic instabilities, export license requirements, foreign exchange risks, tariffs and other barriers, difficulties in staffing and managing foreign sales operations 6 7 potentially adverse tax consequences. In addition, the laws of certain foreign countries may not protect the Company's proprietary rights to the same extent as do the laws of the United States. See "Business -- Proprietary Rights." Other risks inherent in the Company's international business include greater difficulties in accounts receivable collection, the potential of protective trade activities or laws and the burdens of complying with a wide variety of foreign laws. See "Business -- Sales, Marketing, and Customers." The Company's business, operating results, financial condition or growth could be materially adversely affected by these risks. The Company's international sales are generally denominated in dollars, although a portion of its sales to Japanese customers are denominated in yen. In fiscal 1997, approximately 13% and 87% of the Company's total gross sales were denominated in yen and dollars, respectively. Any strengthening of the dollar in relation to the currencies of the Company's competitors or customers could adversely affect the Company's competitiveness. Although a strengthening dollar may result in some offsetting cost reductions on the raw materials imported by the Company, there can be no assurance that such cost reductions would enable the Company to remain competitive. Moreover, a strengthening of the dollar or other competitive factors could put pressure on the Company to denominate a greater portion of its Japanese sales in yen, thereby increasing the Company's exposure to fluctuations in the dollar-yen exchange rate. There can be no assurance that fluctuations in exchange rates will not adversely affect the Company's competitive position or result in foreign exchange losses, either of which could materially adversely affect the Company's business, operating results, financial conditions and prospects. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Overview.LIMITED SOURCES OF SUPPLY There are relatively few manufacturers of thin glass, which raw material accounts for a majority of the Company's materials cost. The Company currently relies primarily on four glass suppliers, Pilkington Micronics, Ltd., Glaverbel Societe Anonyme, Central Glass Co., Ltd., and Nippon Sheet Glass Co., Ltd., all of which are located outside the United States. The Company does not have long-term supply contracts with any of these suppliers, and thus has no contractual assurance of a firm price over an extended term or of a long-term commitment to supply product. In periods of short supply, the Company could have difficulty obtaining the necessary quantities of glass at a competitive cost. Further, the Company operates on a "just-in-time" inventory basis in ordering its glass and other materials and therefore maintains only limited inventories, increasing the operating risks associated with supply interruptions. Such interruptions could occur for numerous reasons, including labor difficulties at some point in the chain of manufacturing or distribution. In addition, the Company may not be able to pass raw material price increases along to its customers, especially in periods of soft demand for the Company's products or excess capacity. Current and potential competitors of the Company that both manufacture and coat glass could be able to better absorb such raw material cost increases due to their vertical integration. If the Company were to experience significant delays, interruptions, or shortages in its material supply or material supplier price increases, the Company's business, operating results, financial condition and prospects could be materially adversely affected. See "Business -- Suppliers.RAPID TECHNOLOGICAL CHANGE The market for thin film coated glass is characterized by rapid change. The Company's future success depends upon its ability to introduce new products, improve existing products and processes to keep pace with technological and market developments, and to address the increasingly sophisticated and demanding needs of its customers. In order to remain competitive, the Company believes it must continue to invest in research and development. The Company expects to increase its research and development expenditures in fiscal 1998 which could adversely affect fiscal 1998 operating results. Technological changes, process improvements or operating improvements which could adversely affect the Company include: (i) development of new technologies which improve manufacturing efficiency of the Company's competitors; (ii) changes in product requirements of the Company's customers; (iii) significant changes in the way coatings are applied to glass for LCDs; and (iv) other changes such as improvements in the design of cathodes. If the Company does not adapt to such changes or improvements the Company's competitive position, operations and prospects would 7 8 be materially, adversely affected. In addition, there are alternative technologies to sputtering technology for three of the thin film coating layers used in PDPs. Materials applied by the Company to thin glass to provide conductivity or other properties are generally available and are not patented. Development of a new material which improves the performance of thin film coated glass and better addresses customer needs could, if not adopted by the Company, have a material adverse effect on the Company's operations and prospects. There can be no assurance that the Company will be successful in meeting the demands of the marketplace or that one or more of these factors will not have a material adverse effect on the Company's business, operating results, financial condition or prospects. See "Business -- Products and Manufacturing.EVOLVING FPD MARKET The Company believes that much of the growth in the FPD market will be in higher information content FPDs, such as STN LCDs, active matrix LCDs ("AM LCDs"), and PDPs. See "Business -- Products and Manufacturing." During fiscal 1997 less than 10% of the Company's coated glass revenues were derived from the sale of coated glass used in higher information content FPDs. Due in part to strong customer demand for thin film coated glass for lower information content displays, the Company has to date directed most of its production capacity to the TN coated glass which is presently used in such displays. While the Company has recently made and is making investments in additional production capacity for STN coated glass, there can be no assurance that the Company will be able to successfully expand its position in the market for thin film coated glass for higher information content FPDs. A reduction in the market for thin film coated glass for TN LCDs as a result of a shift in demand toward higher information content displays could materially adversely affect the Company's results of operations and could be to the advantage of competitors of the Company who may currently have greater capacity to produce thin film coated glass for STN or AM LCDs. This could affect the Company's operating results while it transfers resources to the manufacture of thin film coated glass for STN LCDs. See "Business -- Strategy" and "-- Products and Manufacturing." The Company's business depends substantially on the purchasing requirements of manufacturers of FPDs, which, in turn, depend upon the current and anticipated market demand for FPDs. Sales of thin film coated glass to these manufacturers are expected to continue to represent a significant portion of the Company's net sales. Although the market for FPDs has experienced significant growth, there can be no assurance that such growth will continue at current rates or at all, or that any growth will have a positive impact on the Company's future business or results of operations. The Company's business, operating results, financial condition and prospects would be materially adversely affected by any future downturns in the FPD market. DEPENDENCE ON KEY CUSTOMERS; LIMITED NUMBER OF CUSTOMERS The Company's ten largest customers accounted for, in the aggregate, approximately 63%, 56% and 59% of the Company's gross sales in fiscal years 1995, 1996 and 1997, respectively. The loss of, or a significant reduction of purchases by, one or more of these customers would materially adversely affect the Company's business, operating results, financial condition and prospects. The Company expects that sales of its products to relatively few customers, particularly in the LCD market, will continue to account for a high percentage of its revenue in the foreseeable future. In addition, in the LCD market, there are a limited number of potential customers. The Company has not entered into long-term agreements with its customers and none are obligated to continue to buy their thin film coated glass from the Company. Moreover, in the event that customers purchase thin film systems from the Company or one of its competitors and begin coating the glass in-house, sales to those customers may decrease sharply. If such lost sales are not replaced on a timely basis by new orders of thin film coated glass or capital equipment from other customers, the Company's business, operating results, financial condition and prospects could be materially adversely affected. See "--Fluctuations in Demand and Annual and Quarterly Operating Results" and "Business -- Sales, Marketing, and Customers.MANAGEMENT OF GROWTH In order to support potential future growth, the Company will need to expand its facilities, improve its productivity, add additional production lines, enhance its management information systems and add additional 8 9 management personnel. There can be no assurance that the Company will continue to grow or be effective in managing its future growth, expanding its facilities and operations or attracting and retaining additional qualified personnel. Any failure to effectively manage growth, expand its operations or attract and retain personnel could have a material adverse effect on the Company's business, operating results, financial condition, and prospects. See "-- Fluctuations in Demand and Annual and Quarterly Operating Results" "-- Dependence on Management and Other Key Personnel," and "Business -- Employees.DECLINING AVERAGE SELLING PRICES; DEPENDENCE UPON PRODUCTIVITY IMPROVEMENTS Many of the Company's customers are under continuous pressure to reduce prices and, therefore, the Company expects to continue to experience downward pricing pressures on its thin film coated glass products. The Company is frequently required to commit to price reductions before it has determined that assumed cost reductions can be achieved. To offset declining average sales prices, the Company must achieve manufacturing efficiencies and cost reductions and obtain orders for higher volume products. If the Company is unable to offset declining average sales prices, the Company's gross margins will decline, and such decline will materially adversely affect the Company's business, operating results, financial condition and prospects. See "-- Fluctuations in Demand and Annual and Quarterly Operating Results" and "Management's Discussion and Analysis of Financial Condition and Results of Operations." The Company has improved its manufacturing productivity in recent years, enabling increased capacity and sales. The continued growth of the Company is substantially dependent upon the Company's ability to continue to improve the productivity of its existing manufacturing assets. The inability of the Company to improve productivity could have a material adverse effect on the Company's business, operating results, financial condition and prospects. DEPENDENCE ON MANAGEMENT AND OTHER KEY EMPLOYEES The Company's success during the foreseeable future will depend largely upon the continued services of its executive officers, and certain other key employees. These executive officers and key employees include: President and Chief Executive Officer, Cecil Van Alsburg; Chief Operating Officer and Executive Vice President, Thomas Edman; Vice President -- Research, John S. Chapin; Vice President -- Engineering, C. Richard Condon; Vice President -- Operations -- Thin Film Coatings, Mark Auble; Vice President -- Sales and Marketing, Graeme Hennessey; Chief Financial Officer, Thomas D. Schmidt; Director of Operations -- Thin Film Systems, Russell W. Black; and Advanced Development Manager, John J. Kester. The loss of the services of one or more of the executive officers or other key employees could materially adversely affect the Company's business. Cecil Van Alsburg, the Company's President and Chief Executive Officer, presently intends to transition day-to-day management responsibility for the Company to Thomas Edman, the Company's current Chief Operating Officer and Executive Vice President, over the next 18 months. The Company does not have employment agreements or key-man life insurance on any of its executive officers or other key employees. The Company's future success will be dependent in part upon the Company's ability to attract and retain additional qualified managers, engineers and other employees. The Company's business, operating results, financial condition or growth could be materially adversely affected if the Company were unable to attract, hire, assimilate, and train these employees in a timely manner. See "Business -- Employees" and "Management.NEW FACILITY EXPANSION The establishment of the Company's new manufacturing facility and the development and implementation of additional production lines will entail risks related to new production facilities and will require an investment of the Company's capital. As part of its manufacturing expansion, the Company will need to hire and train a substantial number of new manufacturing workers. The availability of skilled and unskilled workers in the Denver metropolitan area, the site of the Company's new manufacturing facility, is limited due to a relatively low unemployment rate. There can be no assurance that the Company will successfully develop improved processes, implement additional production lines or successfully operate its new facility. There can be no assurance that the Company will be able to successfully complete construction of its new manufacturing facility on a timely basis or at all, or that such new facility will result in greater manufacturing capacity or 9 10 lower manufacturing costs than those currently experienced by the Company. The Company will incur duplicate facilities and operating costs during its transition from its existing manufacturing facility to its new manufacturing facility. In addition, the Company will incur certain start-up expenses at the new facility and may experience interruptions in production during such transition. These factors will adversely affect the Company's fiscal 1998 operating results, and may adversely affect fiscal 1999 operating results. Failure to open its new manufacturing facility and increase capacity on a timely basis could damage customer relationships, cause lost opportunities and have a material adverse effect on the Company's business, results of operations and financial condition. See "Use of Proceeds" and "Business -- Facilities.SUBSTANTIAL CONTROL BY MANAGEMENT AND PRINCIPAL SHAREHOLDERS Upon completion of this offering, the Company's officers, directors and their affiliates will retain voting control of approximately 42% of the Company's Common Stock (38% if the underwriters' over-allotment option is exercised in full). As a result, these shareholders, acting together, would be able to influence the outcome of actions requiring shareholder approval, such as the election of directors, amendments to the Company's articles of incorporation, mergers and other actions by shareholders with respect to the business and affairs of the Company. In addition, the voting power of these shareholders under certain circumstances could have the effect of delaying or preventing a change in control of the Company. See "Management," "Principal and Selling Shareholders" and "Description of Capital Stock.LIMITED PROTECTION OF PROPRIETARY RIGHTS The Company relies primarily upon trade secret laws and employee and third-party nondisclosure agreements to protect its proprietary technology. There can be no assurance that the steps taken by the Company to protect its proprietary rights will be adequate to prevent misappropriation of such rights or that third parties will not independently develop a functional equivalent or superior technology. The Company is not aware that its products or other proprietary rights infringe the proprietary rights of third parties. There can be no assurance, however, that third parties will not assert infringement claims against the Company in the future or that any such claims will not require the Company to enter into license agreements or result in protracted and costly litigation, regardless of the merits of such claims. In addition, there can be no assurance that the Company will be able to obtain licenses to dispute a third-party technology or that such licenses, if available, would be available on commercially reasonable terms. There can be no assurance that these factors will not adversely affect the Company's business, operating results, financial condition or growth. See "Business -- Proprietary Rights.ENVIRONMENTAL REGULATIONS The Company uses hazardous chemicals in producing its products. As a result, the Company is subject to a variety of local, state and federal governmental regulations relating to the storage, discharge, handling, emission, generation, manufacture and disposal of toxic or other hazardous substances used to manufacture the Company's products. The failure to comply with current or future regulations could result in the imposition of substantial fines on the Company, suspension of production, alteration of its manufacturing processes or cessation of operations. GENERAL ECONOMIC CONDITIONS A deterioration in the level of consumer confidence and general economic conditions could result in a decline of purchases and production by the Company's customers and thus have an adverse effect on the sale of the Company's products. A high percentage of the Company's products are used in LCDs for many consumer electronic products. In addition, the Company's products are used in certain displays used for commercial and industrial purposes. Unfavorable economic conditions or factors that relate to these industries, particularly any conditions that might result in reductions in capital expenditures by end customers, could have a material adverse effect on the Company's business, operating results, financial conditions or growth. See "Business -- Products and Manufacturing.ABSENCE OF PRIOR TRADING MARKET; POTENTIAL VOLATILITY OF STOCK PRICE Prior to this offering there has been no public market for the Company's Common Stock and there can be no assurance that following this offering an active trading market will develop or be maintained. The initial 10 11 public offering price was determined by negotiations among the Company, the Selling Shareholders and the representatives of the underwriters and may not be indicative of prices that will prevail in the trading market following this offering. For a description of the factors considered in determining the initial public offering price, see "Underwriting." In addition, the stock market has historically experienced volatility which has particularly affected the market prices of securities of many technology-based companies and which sometimes has been unrelated to the operating performances of such companies. Factors such as announcements of technological developments for products by the Company or its competitors, fluctuations in foreign exchange rates, variations in the Company's quarterly operating results, or general, economic or stock market conditions may significantly impact the market price of the Common Stock after this offering. Furthermore, any adverse changes in the market price of common stock of other similar companies may adversely affect the market price of the Company's Common Stock, irrespective of whether there has been any deterioration in the Company's business, operating results, financial condition or prospects. ANTITAKEOVER PROVISIONS; POSSIBLE ISSUANCE OF PREFERRED STOCK The Company's Articles of Incorporation and Bylaws contain provisions which may have the effect of delaying, deferring or preventing a change in control of the Company, may discourage bids for the Common Stock at a premium over the market price of the Common Stock and may adversely affect the market price of the Common Stock and the voting and other rights of the holders of the Common Stock. These provisions include, but are not limited to, a classified Board of Directors, fair price provisions and the authority of the Board to issue up to 1,000,000 shares of preferred stock and to fix the price, rights, preferences, privileges and restrictions, including voting rights, of those shares without further vote or action by the Company's shareholders. The rights of the holders of Common Stock will be subject to, and may be adversely affected by, the rights of the holders of any preferred stock that may be issued in the future. The Company has no present plans to issue shares of preferred stock. See "Description of Capital Stock.SHARES ELIGIBLE FOR FUTURE SALE Upon completion of this offering, the 1,900,000 shares of Common stock offered hereby (2,185,000 shares of Common Stock if the underwriters' over-allotment is exercised in full), will be freely tradable by persons other than "affiliates" of the Company without restriction. The remaining 1,399,998 shares of Common Stock held by officers, directors and existing shareholders of the Company (1,351,437 shares if the underwriters' over-allotment is exercised in full) are subject to "lockup" agreements under which the holders of such shares have agreed not to sell or otherwise dispose of any shares of Common Stock without the prior written consent of Needham & Company, Inc., for a period of 180 days after the date of this prospectus. Such shares of Common Stock will be eligible for resale after the expiration of the lockup period, subject to the provisions of Rule 144 under the Securities Act of 1933, as amended (the "Act"). In addition, the Company intends to file registration statements under the Act covering the sale of 479,000 shares of Common Stock reserved for issuance under the Company's 1993 Stock Option Plan, 1997 Stock Option Plan and the 1997 Employee Stock Purchase Plan. Shares acquired through the exercise of options by parties to lockup agreements will be subje | 1 |
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| risk factors an investment in our common stock involves a high degree of risk. you should carefully consider the risks described below and all of the other information contained in this prospectus before deciding whether to purchase our common stock. the risks and uncertainties described below are not the only risks and uncertainties we face. additional risks and uncertainties not presently known to us or that we currently deem immaterial may also impair our business operations. if any of the following risks actually occur, our business, financial condition and results of operations would suffer. in such case, the trading price of our common stock could decline, and you may lose all or part of your investment in our common stock. risks related to our businessour limited history of sales of our key products makes it difficult to evaluate our prospects. most of our key products have only been sold in significant quantities for a short time. for example, our stmp 3410 portable audio soc was introduced in the fourth quarter of 2001, but did not begin shipping in significant quantities until the second quarter of 2002. sales of this product are highly dependent upon continued acceptance of portable mp3 music players by consumers. since we cannot accurately monitor sell-through of our customers mp3 players which contain our portable audio socs, it is possible that some of these products may not be selling through. as a result, our customers could experience inventory growth that could cause them to purchase fewer products from us or seek to return products to us in the future. there can be no assurance that our customers have not or will not place orders in excess of their requirements in response to actual or perceived shortages in the supply of our ics. in such event, it will be more difficult for us to forecast our future revenues and budget our operating expenses, and our operating results would be adversely affected to the extent such excess orders are cancelled or rescheduled. we have limited historical financial data from which to predict our future sales and operating results for our portable audio socs and other key products that we have recently introduced. our limited operating experience with these products, combined with the rapidly evolving nature of the markets in which we sell our products, and other factors which are beyond our control, limit our ability to accurately forecast quarterly or annual sales. because most of our expenses are fixed in the short term or incurred in advance of anticipated sales, we may not be able to decrease our expenses in a timely manner to offset any shortfall in sales. we are currently expanding our staffing and increasing our expenditures to support future growth. if our growth does not materialize, we would incur higher losses. we do not expect to sustain our recent growth rate. due primarily to the introduction of our second generation portable audio soc in 2002, we have experienced significant revenue growth and have gained significant market share in a relatively short period of time. specifically, our annual revenues increased from $24.4 million in 2001 to $30.9 million in 2002, and our revenues increased from $9.1 million for the six months ended june 30, 2002 to $32.5 million for the six months ended june 30, 2003. however, we do not expect similar revenue growth or market share gains in future periods. accordingly, you should not rely on the results of any prior quarterly or annual periods as an indication of our future operating performance.we have a history of losses and may continue to incur losses. we incurred net losses of approximately $22.7 million, $18.4 million and $8.3 million for the years ended december 31, 2000, 2001 and 2002, respectively, and net income of $0.2 million for the six months ended june30, 2003. as of june 30, 2003, we had an accumulated deficit of approximately $52.9 million. despite realizing net income in the six months ended june 30, 2003, we may incur losses in the future. we expect our operating expenses to increase as we pursue our strategic objectives. our results of operations for the six months ended june30, 2003 include non-cash charges of $1.1 million related to stock based compensation and $8.3million related to a deemed dividend on the sale of preferred stock. we will continue to incur stock-based compensation and deemed dividend charges in the future as a result of past option grants and preferred stock 5 sales. our ability to become profitable depends on the rate of growth of our target markets, the continued market acceptance of our customers products, the competitive position of our products, and our ability to develop new products. even if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or an annual basis.we depend on a few key customers for a substantial majority of our sales and the loss of, or a significant reduction in orders from, any of them would likely significantly reduce our revenues. for the years ended december 31, 2000, 2001 and 2002 and for the six months ended june 30, 2003, sales to our top five customers accounted for approximately 89.7%, 92.9%, 75.7% and 70.9%, respectively, of our revenues. our operating results in the foreseeable future will likely continue to depend on sales to a relatively small number of customers, as well as the ability of these customers to sell products that use our ics. our revenues would likely decline if one or more of these customers were to significantly reduce, delay or cancel their orders for any reason. in addition, any difficulty in collecting outstanding amounts due from our customers, particularly customers who place large orders, would harm our financial performance. because our sales are made by means of standard purchase orders rather than long term contracts, we cannot assure you that our customers will continue to purchase our products at current levels, or at all.we rely primarily on a small number of distributors to market and distribute our products, and if we fail to maintain or expand these sales channels, our revenues would likely decline. sales to a small number of distributors generate a significant amount of our revenues. our sales through distributors accounted for 22.2%, 45.5%, 65.5% and 77.6% of our revenues for the years ended december31, 2000, 2001 and 2002 and the six months ended june 30, 2003, respectively. our sales to holystone, a distributor, accounted for 12.8%, 28.2%, 35.0% and 38.2% of our revenues in the years ended december 31, 2000, 2001 and 2002 and the six months ended june 30, 2003, respectively. if holystone or our other distributors were to materially reduce their purchases from us, our business, financial condition and results of operations would suffer. our business will depend on our ability to maintain and expand our relationships with distributors, develop additional channels for the distribution and sale of our products and effectively manage these relationships. our distributors decide whether to include our products among those that they sell and may carry and sell product lines that are competitive with ours. because our distributors are not required to make a specified minimum level of purchases from us, we cannot be sure that they will prioritize selling our products. as we continue to expand our indirect sales capabilities, we will need to manage the potential conflicts that may arise within our indirect sales force. we also rely on our distributors to accurately and timely report to us their sales of our products and to provide certain engineering support services to customers. our inability to obtain accurate and timely reports and to successfully manage these relationships would adversely affect our business and financial results.our business is highly dependent on the consumer electronics market, which is characterized by short product life cycles, fluctuations in demand and seasonality, and subject to risks related to product transitions and supply of other components. we derive a substantial portion of our revenues from a limited number of products that are used in consumer electronic devices. the consumer electronics market is characterized by intense competition, rapidly evolving technology, and ever-changing consumer preferences. these factors result in the frequent introduction of new products, short product life cycles and significant price competition. the dynamic nature of this market limits our, as well as our customers, ability to accurately forecast quarterly and annual sales. if we, or our customers, are unable to manage product transitions, our business and results of operations could be negatively affected. for example, if our customers transition from one type of flash memory to another type and our product is not compatible with the new type of flash memory, sales of our ics would be adversely affected if we were unable to update our product in a timely manner. in addition, we are subject to the risk of supply problems with 6 other components of the end products of our customers. for example, if our customers could not obtain sufficient supplies of flash memory, a key component in many portable compressed audio players, the sales of our products that are also included in such devices would be adversely affected. furthermore, continuing technological advancement in consumer electronic devices, which is a significant driver of customer demand, is largely beyond our control. the expansion of the consumer electronics market in general, and the demand for mp3 products in particular, may be adversely impacted by the enforcement of limits on file sharing and downloadable music. the major record labels have complained about consumers downloading music off of the internet without paying any fees or royalties to the owners of that music. in particular, the recording industry association of america, a recording industry trade group, has announced recently that it plans to sue hundreds of individuals who illegally distribute copyrighted songs over the internet. if the record labels, other music producers, or other parties are successful in limiting the ability of consumers to obtain free music on the internet, the demand for consumer electronic devices such as mp3 players that use our ics may decline. any decline in consumer spending relating to general economic conditions, future terrorist attacks or disease outbreaks, such as severe acute respiratory syndrome, or sars, could also limit the expansion of the consumer electronics market, thus adversely affecting our business. because many of our ics are designed for use in consumer electronic products, such as portable compressed audio players, pcs, and dvd players, we expect our business to be subject to seasonality, with increased revenue in the third and fourth quarters of each year, when customers place orders to meet year-end holiday demand. however, our recent rapid growth in revenues makes it difficult for us to assess the impact of seasonal factors on our business. in particular, strong sales of our portable audio socs resulted in increased revenues during the first quarter of 2003 compared to the fourth quarter of 2002, offsetting seasonal demand factors. if we or our customers are unable to ramp up production of new or existing products to meet any increases in demand due to seasonality or other factors, our revenues from such products would be adversely affected.because of the lengthy sales cycles for our products and the fixed nature of a significant portion of our expenses, we may incur substantial expenses before we earn associated revenues and may not ultimately achieve our forecasted sales for our products. our sales cycles can take up to 12 months to complete and volume production of products that use our ics can take an additional 3 to 6 months to be achieved, if at all. sales cycles for our products are lengthy for a number of reasons: our customers usually complete an in-depth technical evaluation of our products before they place a purchase order; the commercial adoption of our products by oems and original device manufacturers, or odms, is typically limited during the initial release of their product to evaluate product performance and consumer demand; new product introductions often center around key trade shows and failure to deliver a product prior to such an event can seriously delay introduction of a product; and the development and commercial introduction of products incorporating new technology frequently are delayed. as a result of our lengthy sales cycles, we may incur substantial expenses before we earn associated revenues because a significant portion of our operating expenses is relatively fixed and based on expected revenues. the lengthy sales cycles of our products make forecasting the volume and timing of orders difficult. in addition, the delays inherent in lengthy sales cycles raise additional risks that customers may cancel or change their orders. our sales are made by purchase orders. because industry practice allows customers to reschedule or 7 cancel orders on relatively short notice, backlog is not always a good indicator of our future sales. if customer cancellations or product changes occur, this could result in the loss of anticipated sales without allowing us sufficient time to reduce our inventory and operating expenses.we derive a substantial portion of our revenues from our portable audio socs, the selling prices of our products tend to decline over time, and if we are unable to develop successful new products in a timely manner, our operating results and competitive position could be harmed. our recent revenue growth has been primarily from sales of our portable audio socs. our future success depends on our ability to develop successful new products in a timely and cost-effective manner. we are required to continually evaluate expenditures for planned product developments and choose among alternatives based upon our expectations of future market trends. we cannot assure you that we will be able to develop and introduce new or enhanced products in a timely and cost-effective manner or that our products will generate significant revenues. the development of our ics is highly complex, and successful product development and market acceptance of our products depend on a number of factors, including: our accurate prediction of the changing requirements of our customers; our timely completion and introduction of new designs; the availability of third-party manufacturing, assembly, and test capacity; the ability of our foundries to achieve high manufacturing yields for our products; our ability to transition to smaller manufacturing process geometries; the quality, price, performance, power efficiency and size of our products and those of our competitors; our management of our indirect sales channels; our customer service capabilities and responsiveness; the success of our relationships with existing and potential customers; and changes in industry standards. as is typical in the semiconductor industry, the selling price of a product tends to decline significantly over the life of the product. if we are unable to offset any reductions in the selling prices of our products by introducing new products at higher prices or by reducing our costs, our revenues, gross margins and operating results would be adversely affected.we rely on third-party contractors to manufacture, assemble and test our products and our failure to successfully manage our relationships with these contractors could damage our relationships with our customers, decrease our sales, and limit our growth. we rely on third-party contractors to manufacture, assemble, and test our ics. we currently do not have long-term supply contracts with any of our third-party vendors. none of our third-party vendors are obligated to perform services or supply products to us for any specific period, or in any specific quantities, except as may be provided in a particular purchase order. there are significant risks associated with our reliance on these third-party contractors, including: potential price increases; capacity shortages; their inability to increase production and achieve acceptable yields on a timely basis; reduced control over delivery schedules and product quality; 8 increased exposure to potential misappropriation of our intellectual property; limited warranties on wafers or products supplied to us; shortages of materials that foundries use to manufacture our products; failure to qualify a selected supplier; labor shortages or labor strikes; and actions taken by our third-party contractors that breach our agreements.because future foundry capacity may be limited and because we do not have long-term agreements with our foundries, we may not be able to secure adequate manufacturing capacity to satisfy the demand for our products. presently we utilize two foundries to manufacture our portable audio socs and one principal foundry to manufacture our audio codecs. in general, each of our products is manufactured at a single foundry. we provide these foundries with monthly rolling forecasts of our production requirements; however, the ability of each foundry to provide wafers to us is limited by the foundrys available capacity. moreover, the price of our wafers will fluctuate based on changes in available industry capacity. we do not have long term supply contracts with any of our foundries. therefore, our foundry suppliers could choose to prioritize capacity for other customers, particularly larger customers, reduce or eliminate deliveries to us on short notice or increase the prices they charge us. accordingly, we cannot be certain that our foundries will allocate sufficient capacity to satisfy our requirements. if we are not able to obtain foundry capacity as required, our relationships with our existing customers would be harmed and our sales would likely decline.if our foundries do not achieve satisfactory yields or quality, our sales could decrease, and our relationships with our customers and our reputation may be harmed. minor deviations in the ic manufacturing process can cause substantial decreases in yields, and in some cases, cause production to be suspended. for example, a design error by one of our third-party foundries during our third-party foundries, other subcontractors and many of our customers and end customers are located in the pacific rim, an area subject to significant earthquake risk and adverse consequences related to the outbreak of sars. all of the principal foundries that manufacture our products and all of the principal subcontractors that assemble, package, and test our products are located in either south korea, singapore, hong kong, or taiwan. many of our customers are also located in these areas. the risk of an earthquake in these pacific rim locations is significant. the occurrence of an earthquake or other natural disaster near these foundries or subcontractors could result in damage, power outages and other disruptions that impair their production and assembly capacity. any 9 disruption resulting from such events could cause significant delays in the production or shipment of our products until we are able to shift our manufacturing, assembling, packaging or production testing from the affected contractor to another third-party vendor. while we have some foundry capacity in the united states, we may not be able to increase our foundry capacity in the united states, or obtain other alternate foundry capacity on favorable terms, if at all. the recent outbreak of sars has curtailed travel to and from certain countries (primarily in the asia-pacific region) and limited travel and shopping within those countries. in addition, outbreaks of disease or other disasters could limit consumer demand for our ics or the products that use our ics.our recent expansion has placed a significant strain on our management, personnel, systems and resources, and the continued success of our business depends on our ability to successfully manage any future expansion. our business has expanded rapidly, and we expect that further expansion will be required to address the potential growth in our customer base. this expansion has placed, and any future expansion will continue to place, a significant strain on our management, personnel, systems and resources. if we are unable to manage our growth effectively, we may not be able to take advantage of market opportunities, develop new products, enhance our technological capabilities, satisfy customer requirements, execute on our business plan or respond to competitive pressures. to successfully manage our growth, we believe we must effectively: hire, train, integrate and manage additional qualified engineers for research and development activities, sales and marketing personnel, and financial and information technology personnel; continue to enhance our customer resource management and manufacturing management systems; expand and upgrade our core technologies; and manage multiple relationships with our distributors, suppliers, and other third parties.we may experience significant period-to-period quarterly and annual fluctuations in our revenues and operating results, which may result in volatility in our stock price. we have in the past and may in the future experience significant period-to-period fluctuations in our revenues and operating results due to a number of factors, including: the timing and volume of purchase orders and cancellations from our customers; the rate of acceptance of our products by our customers; the rate of growth of the market for analog-intensive, mixed-signal ics; fluctuation and seasonality in demand for our products; increases in prices charged by our foundries and other third-party subcontractors; the availability of third-party foundry capacity; the availability of components used in our customers products, such as flash memory, which is a key component in many portable compressed audio players; fluctuations in manufacturing yields; the difficulty of forecasting and managing our inventory and production levels; the rate at which new markets emerge for products we are currently developing or our ability to develop new products; our involvement in litigation; natural disasters, particularly earthquakes, or disease outbreaks, such as the recent outbreak of sars, affecting countries in which we conduct our business or in which our products are manufactured, assembled, or tested; 10 changes in our product mix; and the evolution of industry standards. any variations in our quarter-to-quarter performance may cause our stock price to fluctuate. it is likely that in some future period our operating results will be below the expectations of public market analysts or investors. if this occurs, our stock price may drop, perhaps significantly.we are subject to the highly cyclical nature of the semiconductor industry. the semiconductor industry is highly cyclical. the industry has experienced significant downturns, often in connection with, or in anticipation of, maturing product cycles (of both semiconductor companies and their customers products) and declines in general economic conditions. these downturns have been characterized by production overcapacity, high inventory levels and accelerated erosion of average selling prices. any future downturns could significantly harm our sales, reduce our profitability or increase our losses for a prolonged period of time. from time to time, the semiconductor industry also has experienced periods of increased demand and production capacity constraints. we may experience substantial changes in future operating results due to general semiconductor industry conditions, general economic conditions and other factors. because the markets in which we compete are highly competitive and many of our competitors have greater resources than us, we cannot be certain that our products will compete favorably in the marketplace. we face competition from a relatively large number of competitors in each of our targeted markets. in the pc and consumer audio markets, we compete primarily with akm, analog devices, c-media, cirrus logic, and realtek. in the portable compressed audio market, our principal competitors include cirrus logic, micronas, philips semiconductor, samsung, and texas instruments. within the usb peripherals market, we compete primarily with kc technology and other companies providing various multi-chip solutions. we expect to face increased competition in the future from our current and emerging competitors. in addition, some of our customers have developed and other customers could develop their own internal ics that could replace their need for our products or otherwise reduce demand for our products. the consumer electronics market, which is a principal end market for our ics, has historically been subject to intense price competition. in many cases, low cost, high volume producers have entered markets and driven down profit margins. if a low cost, high volume producer should develop products that are competitive with our products, our sales and profit margins would suffer. many of our current and potential competitors have longer operating histories, greater name recognition, access to larger customer bases and significantly greater financial, sales and marketing, manufacturing, distribution, technical and other resources than us. as a result, they may be able to respond more quickly to changing customer demands or to devote greater resources to the development, promotion and sales of their products than we can. our current and potential competitors may develop and introduce new products that will be priced lower, provide superior performance or achieve greater market acceptance than our products. in addition, in the event of a manufacturing capacity shortage, these competitors may be able to obtain capacity when we are unable to do so. furthermore, our current or potential competitors have established or may establish, financial and strategic relationships among themselves or with existing or potential customers or other third parties to increase the ability of their products to address the needs of our prospective customers. accordingly, it is possible that new competitors or alliances among competitors could emerge and rapidly acquire significant market share, which would harm our business. we depend on our key personnel to manage our business effectively, and if we are unable to retain our current personnel and hire additional personnel, our ability to develop and successfully market our products could be harmed. we rely heavily on the services of our key employees, including ronald edgerton, our chief executive officer. in addition, our analog designers and other key technical personnel represent a significant asset and serve as the source of our technological and product innovations. we believe our future success will depend upon our ability to retain these key employees and our ability to attract and retain other skilled managerial, engineering and sales and marketing personnel. any of our current employees may terminate their employment with us at any time. the competition for such personnel is intense in our industry. we may not be successful in attracting and retaining sufficient numbers of technical personnel to support our anticipated growth. the loss of any of our key employees or our inability to attract or retain qualified personnel, including engineers, could delay the development and introduction of, and negatively impact our ability to sell, our products.our products are complex and may require modifications to resolve undetected errors or failures in our hardware and software, which could lead to an increase in our costs, a loss of customers or a delay in market acceptance of our products. our ics are complex and may contain undetected hardware and software errors or failures when first introduced or as new versions are released. these errors could cause us to incur significant re-engineering costs, divert the attention of our engineering personnel from product development efforts and cause significant customer relations and business reputation problems. if we deliver products with errors, defects or bugs, our credibility and the market acceptance and sales of our products could be harmed. defects could also lead to liability for defective products as a result of lawsuits against us or against our customers. we have agreed to indemnify our customers in some circumstances against liability from defects in our products. a successful product liability claim could require us to make significant damage payments.we have substantial international sales, which expose us to additional business risks including increased logistical complexity and political instability. our sales outside of the u.s. as a percentage of total sales were 69.5%, 85.0%, 98.3% and 99.8% for the years ended december 31, 2000, 2001 and 2002, and the six months ended june 30, 2003, respectively. we plan to expand our international sales activities, but may not be able to maintain or increase international market demand for our products. our international sales are subject to a number of risks, including: increased complexity and costs of managing international sales; protectionist laws and business practices that favor local competition in some countries; multiple, conflicting and changing laws, regulations and tax schemes; longer sales cycles; public health issues, such as the recent sars outbreak; greater difficulty in accounts receivable collection and longer collection periods; and political and economic instability. to date, all of our sales to international customers and purchases of components from international suppliers have been denominated in u.s. dollars. as a result, an increase in the value of the u.s. dollar relative to foreign currencies could make our products more expensive for our international customers, thus potentially leading to a reduction in sales and profitability. furthermore, many of our competitors are foreign companies that could benefit from such a currency fluctuation making it more difficult for us to compete with those companies. we may be unable to effectively protect our intellectual property, which would negatively affect our ability to compete. we believe that the protection of our intellectual property rights will continue to be important to the success of our business. we rely on a combination of patent, copyright, trademark and trade secret laws and restrictions on disclosure to protect our intellectual property rights. we also enter into confidentiality or license agreements with our employees, consultants and business partners, and control access to and distribution of our documentation and other proprietary information. despite these efforts, unauthorized parties may attempt to copy or otherwise obtain and use our proprietary technology. monitoring unauthorized use of our technology is difficult, and we cannot be certain that the steps we have taken will prevent unauthorized use of our technology, particularly in foreign countries where the laws may not protect our proprietary rights as fully as do the laws of the u.s. many u.s. companies have encountered substantial infringement problems in foreign countries, including countries in which we sell products. we do not currently hold any non-u.s. patents. we cannot be certain that patents will be issued as a result of our pending applications nor can we be certain that any issued patents would protect or benefit us or give us adequate protection from competing products. for example, issued patents may be circumvented or challenged and declared invalid or unenforceable. we also cannot be certain that others will not develop our unpatented proprietary technology or effective competing technologies on their own.significant litigation over intellectual property in our industry may cause us to become involved in costly and lengthy litigation, which could subject us to liability, require us to stop selling our products or force us to redesign our products. in recent years, there has been significant litigation in the u.s. involving patents and other intellectual property rights in the semiconductor industry. in the past, we have found it necessary to engage in litigation to enforce and defend our intellectual property rights, to protect our trade secrets or to determine the validity and scope of proprietary rights of others. for example, in 2000 we settled a patent infringement and trade secret claim filed by cirrus logic related to our audio co | 1 |
| risk factors an investment in our common stock involves a high degree of risk. you should consider carefully the risks described below, as well as all of the other information contained in this prospectus, before making any investment decision with respect to our common stock. please note that it is not possible to predict or identify all factors that could cause our actual results to differ. consequently, you should not consider any list of factors to be a complete set of all potential risks or uncertainties. the risks and uncertainties described below are not the only ones we face. if any of the following risks actually occurs, our business, financial condition or results of operations would likely suffer, the trading price of our common stock could decline, and you could lose all or part of your investment in our common stock. risks related to our business and industrywe depend on our powerflow suite of simulation solutions for substantially all of our revenue, and our business will suffer if demand for, or usage of, powerflow declines. we derive substantially all of our revenue from subscription licenses to use our powerflow software suite and related services. we expect revenue from powerflow to continue to account for substantially all of our revenue for the foreseeable future. if demand for, or usage of, powerflow declines for any reason, our revenue would decline and our operating results would suffer.we are dependent on a small number of significant customers for a substantial portion of our revenues. a significant portion of our revenues is derived from renewals by our existing customers of annual licenses to use powerflow, and in any fiscal period, a large portion of our revenue is typically attributable to a small number of significant customers. in fiscal years 2010, 2011 and 2012 and in the three months ended april 30, 2012, approximately 13%, 13%, 13%, and 15% of our revenue, respectively, was attributable to renault and approximately 10%, 11%, 9% and 9% of our revenue, respectively, was attributable to toyota. our relationship with each of these customers is an arms length commercial relationship. our contract with renault expires in december 2013. we do not have a long-term contract with toyota. in each of those years and in the three months ended april 30, 2012, approximately 61%, 69%, 64% and 69% of our revenue, respectively, was attributable to our ten largest customers in the aggregate, including renault and toyota. due to the concentration of revenue in a small number of customers, a significant reduction in usage of powerflow by any of these customers, or the non-renewal of their annual licenses, due to the cancellation or postponement of vehicle development programs or for any other reason, could have a materially adverse affect on our results of operations.our success depends on continued adoption of digital simulation in our target markets, and if potential customers are unwilling to adopt our digital simulation technologies to augment or replace their traditional physical methods of design validation and testing, our opportunities for future revenue growth may be limited. most of our customers and potential customers have historically tested their product designs using experimental methods such as wind tunnels and road tests. manufacturers often have made substantial investments in physical test facilities and associated staff and infrastructure and have accumulated many years of experience in using these methods. for organizational, cultural, financial or other reasons, potential customers may be reluctant to reduce their reliance on physical experimental methods as the primary means to validate and test their designs. if we are not successful in overcoming these obstacles by demonstrating to potential customers that the results of digital simulation using powerflow can be delivered in a timely and cost effective manner and are sufficiently reliable to be used as the basis of design decisions, they may not adopt, or may delay broader adoption of, our digital simulation technology, which could limit our opportunities for revenue growth and adversely affect our business.economic downturns that affect the ground transportation industry may adversely affect our revenues and operating results. we derive a substantial majority of our total revenue from companies in the ground transportation industry. accordingly, our future success depends upon the continued demand for digital simulation software and services by companies in this industry. the ground transportation industry and the other manufacturing industries that we serve, or may expand into, periodically experience economic downturns that can adversely affect our business. for example, our license revenue declined in fiscal year 2010, due to the suspension or postponement of vehicle 10 development programs by our customers in response to the 2008 financial crisis and resulting recession, which significantly affected the automotive industry. furthermore, terrorist attacks, other increased global hostilities and natural disasters have, at times, contributed to widespread uncertainty and speculation in the world financial markets. the impact of events of this kind may be exacerbated by other economic factors, such as increased operating and manufacturing costs due to rising global energy prices or the tightening of the financial and credit markets, and by changes in commercial and consumer preferences and spending habits. in the future, such cyclical trends and economic factors may adversely affect our business by reducing customer capital expenditures, extending design cycles and reducing our revenue and, ultimately, our results of operations. in addition, manufacturers in the ground transportation market tend to adhere to a technology choice for long periods, possibly an entire product development cycle. as a result, a lost opportunity with a given customer may not again become a new opportunity for several years or projects may be delayed if development of a new product is put on hold or terminated. adverse changes in the economy and global economic and political uncertainty may also cause delays and reductions in information technology spending by our customers and a deterioration of the markets for our products and services. if adverse economic conditions occur, we would likely experience reductions, delays and postponements of customer purchases that will negatively impact our revenue and operating results. in the past, worldwide economic downturns and pricing pressures have led to reorganizations of companies in the automotive industry. such reorganizations have in the past caused delays and reductions in capital and operating expenditures including for products and services like ours. in addition, a consolidation or reorganization affecting a significant customer could result in discontinuation of use by the acquired company of our simulation solutions, if the acquiring company has not adopted our technology or prefers other methods of design verification. domestic and foreign economic conditions or any other factors that result in reduced spending on new product development by companies in the automotive industry could harm our operating results in the future.our lengthy and complicated sales cycle makes it difficult for us to predict the timing of our entry into new license agreements. the development of our business relationship with a potential customer can be a lengthy process, typically spanning three to six months or longer. our strategy is to engage initially with new customers, or with new engineering groups within existing customers, by performing fixed-price projects. once new customers are familiar with the capabilities of our products, they generally, but not always, transition to a license-based model for access to powerflow. because the license fees for our products can be substantial and the internal process changes necessary for a customer to implement our solution can be significant, the software license sales cycle may involve multiple divisions within a potential customers organization and multiple layers of management. due to the length and complicated nature of our sales cycle, predicting the fiscal period in which a new license agreement will be entered into, if at all, is difficult. delay in booking a new license agreement could cause our quarterly revenues to fall substantially below our expectations and those of public market analysts and investors. delays in sales could cause significant shortfalls in our revenue and operating results for any particular period.competition from software offered by current competitors and new market entrants, as well from internally developed solutions by our customers, could adversely affect our ability to sell our software products and related services and could result in pressure to price our products in a manner that reduces our profitability. the market for digital simulation software is characterized by vigorous competition. we consider the primary competition to adoption of our solutions to be our customers continued use of physical prototypes and test facilities. we also encounter competition from companies that provide multi-function digital simulation software that is used for various purposes in the ground transportation industry and elsewhere, primarily cd-adapco, with its products star-cd and star-ccm+, and ansys, with its products fluent and cfx. cd-adapco has a strong presence in the automotive market, and offers capabilities in certain areas where we do not currently focus, such as combustion. ansys offers a suite of digital simulation software that includes many applications that we do not address, such as structural mechanics and electromagnetism, which it markets to a broad spectrum of industries. we also compete against open source software such as openfoam that includes computational fluid dynamics capabilities. in most of our existing and potential new accounts, products such as these are already in use for a variety of purposes, and likely will remain so. our ability to further penetrate the ground transportation market will therefore depend on our ability to demonstrate that our solutions deliver economic value in the form of significant process and 11 cost improvements that competing products are unable to provide. as we expand our offerings into other markets, we may face competition from the same competitors as well as from companies that we have not typically competed against in the past. many of our current and potential competitors have greater financial, technical, marketing, service and other resources than we have and may expand into our markets by acquiring other companies or otherwise. as a result, these companies may be able to offer lower prices, additional products or services, or other incentives that we cannot match or offer. existing and potential customers may perceive the cost of our solution as being higher than that of our competitors products. this perception could become an obstacle to wider adoption of our simulation solutions, or result in pressure to reduce our prices or change our capacity-based pricing model. we may not be able to compete successfully against current or future competitors and competitive pressures may materially adversely affect our business, financial condition and operating results.the significant cost of deep deployment of our solutions could deter their wider adoption. under our capacity-based license model, license fees are based on simulation capacity, purchased on an annual basis. increased utilization, or continued usage after the expiration of the license term, requires the purchase of additional simulation capacity. as customers increase their reliance on our digital simulation solutions and deploy them more widely within their organizations, their consumption of our simulation capacity increases. for example, one customer has expanded the annual simulation capacity it purchases from us by a factor of over 50 times over a period of six years. at some point, the significant cost of implementing our solutions pervasively throughout their organizations under a capacity-based licensing model may deter our customers from more widely adopting our solutions, which could limit our prospects for growth.our success depends in part on our ability to develop and introduce new and enhanced products and we may not be able to timely develop new and enhanced products to satisfy changes in demand. our success depends in part on our ability to develop and market new and enhanced solutions on a timely basis. successful product development and marketing depends on numerous factors, including our ability to anticipate customer requirements, changes in technology, our ability to differentiate our products and solutions from those of our competitors, and market acceptance. enterprises are requiring their application software vendors to provide greater levels of functionality and broader product offerings. moreover, our industry is characterized by rapidly changing technologies and evolving industry standards and operating platforms. we may not be able to develop and market new or enhanced solutions in a timely or cost-effective manner or to develop and introduce products that satisfy customer requirements. our products also may not achieve market acceptance or correctly anticipate technological changes. in particular, a critical component of our growth strategy is to increase the penetration and expansion of powerflow and our related products with our existing customers in the ground transportation market. we may not be successful in developing and marketing, on a timely basis, new products or product enhancements, or adequately addressing the changing needs of our customers and potential customers or successfully increasing the penetration of powerflow and our related products in our existing, or any other, markets.our success in penetrating new vertical markets will depend, in part, on our ability to develop a deep understanding of the challenges facing potential customers in those markets. we have historically concentrated our development efforts primarily on the ground transportation market. while we anticipate that the substantial majority of our revenues will continue to be derived from the ground transportation market for the foreseeable future, in order to achieve our long-term growth goals, we will need to penetrate additional vertical markets, such as the aerospace, oil and gas production, chemical processing, architecture and construction, power generation, biomedical and electronics industries. our success in the ground transportation market depends on our deep understanding of the design processes utilized by our customers in that market. in order to penetrate new vertical markets, we will need to develop a similar understanding of the design processes, and associated technical difficulties, utilized by participants in those markets. developing this level of understanding will be a time consuming and potentially expensive process, and we may not be successful. we will also need to demonstrate to potential customers that powerflow and our other products and services can provide digital simulation solutions that compare favorably to physical testing methods as well as the offerings by our competitors with respect to cost, accuracy, set-up time and ease of use. if we fail to penetrate these new vertical markets, our revenue may grow at a slower rate than we anticipate and our financial condition could suffer. we may not be able to obtain or maintain necessary licenses of third-party technology on commercially reasonable terms, or at all, which could delay product sales and development and adversely impact product quality. we have incorporated third-party licensed technology into certain of our products. we anticipate that we are also likely to need to license additional technology from third parties in connection with the development of new products or product enhancements in the future. third-party licenses may not be available to us on commercially reasonable terms, or at all. the inability to retain any third-party licenses required in our current products or to obtain any new third-party licenses to develop new products and product enhancements could require us to obtain substitute technology of lower quality or performance standards or at greater cost, and delay or prevent us from making these products or enhancements, any of which could seriously harm the competitive position of our products.defects or errors in our products could harm our reputation, impair our ability to sell our products and result in significant costs to us. powerflow and the other products that we offer are complex and, despite extensive testing and quality control, may contain undetected errors or failures when first introduced or as new versions are released. we have not suffered significant harm from any defects or errors to date, but we have from time to time found defects in our products and we may discover additional defects in the future. we may not find errors in new or enhanced products before the products are released and such errors may not be discovered by us or our customers until after the products have been implemented. we have in the past issued and may in the future need to issue corrective releases of our products to remedy defects and errors. any of these problems may result in the loss of or delay in customer acceptance and sales of our products, which could have a material, adverse effect on our business, financial position, results of operations and cash flows.we could be subject to significant expenses and damages because of liability claims related to our products and services. our customers reliance on our digital simulation solutions or project-based services in their vehicle design processes may entail the risk of product liability claims and associated damages, and our software products and services could give rise to warranty and other claims. as we expand into new market segments outside the ground transportation industry, the risk of product liability exposure may increase. any errors, defects, performance problems or other failure of our software could result in significant liability to us for damages or for violations of environmental, safety and other laws and regulations. our agreements with our customers generally contain provisions designed to limit our exposure to potential product liability claims. it is possible, however, that the limitation of liability provisions in our agreements may not be effective as a result of federal, foreign, state or local laws or ordinances or unfavorable judicial decisions. a substantial product liability judgment against us could materially and adversely harm our operating results and financial condition. even if our software is not at fault, a product liability claim brought against us could be time consuming, costly to defend and harmful to our operations. in addition, although we carry general liability insurance, our current insurance coverage may be insufficient to protect us from all liability that may be imposed under these types of claims.if there are interruptions or delays in our powerflow ondemand services due to third-party error, our own error or the occurrence of unforeseeable events, delivery of our solutions and the use of our service could become impaired, which could harm our relationships with customers and subject us to liability. we provide powerflow ondemand services primarily through a data center operated by ibm in piscataway, new jersey under an agreement with ibm. ibm provides the system infrastructure and owns or leases the computer hardware used for the powerflow ondemand services that it hosts. design and mechanical errors, spikes in usage volume and failure to follow system protocols and procedures could cause our systems, or those in the ibm data center, to fail, resulting in interruptions in our service. interruptions or delays in our powerflow ondemand service could result from the termination of our arrangement with ibm, third-party error, our own error, natural disasters or security breaches. such interruptions or delays, whether accidental or willful, could harm our relationships with customers, damage our brand and reputation, divert our employees attention, reduce our revenue, subject us to liability, cause us to issue credits or cause customers to fail to renew their subscriptions, any of which could adversely affect our business, financial condition and results of operations. if our security measures, or those of third-party providers for our powerflow ondemand service, are breached and unauthorized access is obtained to client data, clients may curtail or stop their use of our solutions, which could harm our business, financial condition and results of operations. our powerflow ondemand service involves the storage and transmission of confidential information of customers, including their design data. we may also in the course of our service engagements have access to such confidential customer information. if our, or our third-party service providers, security measures were ever breached as a result of employee error, malfeasance or otherwise, and, as a result, an unauthorized party obtained access to this confidential data, our reputation could be damaged, our business could suffer and we could incur significant liability. techniques used to obtain unauthorized access or to sabotage systems change frequently and generally are not discovered until launched against a target. as a result, we and our third-party providers may be unable to anticipate these techniques or to implement adequate preventative measures. if an actual or perceived breach of our or our third-party suppliers security occurs, the market perception of our ondemand services could be harmed and we could lose sales and clients.seasonal variations in the purchasing patterns of our customers may lead to fluctuations in the timing of our cash flows. we have experienced and expect to continue to experience seasonal variations in the timing of customers purchases of our software products. many customers make purchase decisions based on their fiscal year budgets, which often coincide with the calendar year, except for our customers in japan. these seasonal trends materially affect the timing of our cash flows, as license fees become due at the time the license term commences. as a result, new and renewal licenses have been concentrated in the fourth quarter of our fiscal year, and our cash flows from operations have been highest in the first quarter of the succeeding fiscal year.declines in new software license sales or in the rate of renewal of our software may not be fully reflected in our current period operating results and could lead to future revenue shortfalls that could affect our results of operations. because our software products are sold pursuant to annual subscription agreements and we recognize revenue from these subscriptions over the term of the agreement, downturns or upturns in new or renewal licenses may not be fully reflected in our current period operating results. we do not intend to report or disclose our bookings or invoices on a current basis. if our new and renewal license purchases in any period decline or fail to grow at a rate consistent with our historical trends, particularly in the fourth quarter of our fiscal year, when a disproportionate percentage of our new license and renewal sales typically occur, our revenue in future periods could fall short of analysts expectations which, in turn, could adversely affect the price of our common stock.our cost structure is relatively fixed in the short term, which makes it difficult to reduce our expenses quickly in response to declines in revenue or revenue growth. most of our expenses, such as those associated with headcount and facilities, are relatively fixed and can be difficult to reduce in the short term. our expense levels are based in part on our expectations regarding future revenue levels. as a result, if revenue for a particular quarter is below our expectations, our expenses for that quarter may constitute a larger percentage of our operating budget than we planned, causing a disproportionate effect on our expected results of operations and profitability for that quarter.if we are unable to manage our expected growth, our performance may suffer. our business has grown rapidly, and if we are successful in executing our business strategy, this growth will continue as we expand our offerings in the ground transportation market and seek to penetrate new vertical markets. we will need to continue to expand our managerial, operational, financial and other systems and resources to manage our operations, continue our research and development activities, increase our sales force and expand project-based services by increasing our field application engineers and worldwide support staff. it is possible that our management, finance, development personnel, systems and facilities currently in place may not be adequate to support this future growth. our need to effectively manage our operations, growth and products requires that we continue to develop more robust business processes and improve our systems and procedures in each of these areas and to attract and retain sufficient numbers of talented employees. we may be unable to successfully implement these tasks on a larger scale and, accordingly, may not achieve our research, development and growth goals. our business could be adversely affected if we are unable to attract, integrate and retain key personnel. our success in the highly competitive digital simulation market depends largely on our ability to attract, integrate and retain highly skilled technical, managerial, consulting, sales and marketing personnel. competition for these personnel in our industry is intense. we may not be able to continue to attract and retain the appropriately qualified, highly skilled employees necessary for the development of our products and services and the growth of our business, or to replace such personnel who leave our employ in the future. the loss of services of any of our key personnel, the inability to retain and attract qualified personnel in the future, or delays in hiring required personnel, particularly scientific, product development and applications management personnel, could make it difficult to meet key objectives, such as timely and effective product introductions, penetration and expansion into existing accounts and growth in our share of the domestic and international digital simulation market.we may expand by acquiring or investing in other companies, which may divert our managements attention, result in additional dilution to our stockholders and consume resources that are necessary to sustain our business. although we have no agreements or commitments for any material acquisitions, our business strategy may in the future include acquiring complementary services, technologies or businesses. we also may enter into relationships with other businesses to expand our service offerings or our ability to provide service in foreign jurisdictions, which could involve preferred or exclusive licenses, developing channels of distribution or investments in other companies. negotiating these transactions can be time-consuming, difficult and expensive, and our ability to close these transactions may often be subject to approvals that are beyond our control. consequently, these transactions, even if undertaken and announced, may not close. an acquisition, investment or business relationship may result in unforeseen operating difficulties and expenditures. in particular, we may encounter difficulties assimilating or integrating the businesses, technologies, products, personnel or operations of the acquired companies, particularly if the key personnel of the acquired company choose not to work for us, the companys technology is not easily adapted to work with ours or we have difficulty retaining the customers of any acquired business due to changes in management or otherwise. acquisitions may also disrupt our business, divert our resources and require significant management attention that would otherwise be available for development of our business. moreover, the anticipated benefits of any acquisition, investment or business relationship may not be realized or we may be exposed to unknown liabilities. our acquisitions may not be successfully integrated or any such acquisitions may not otherwise be successful. if our acquisitions are unsuccessful for any reason, our business may be harmed and the value of your investment may decline.we sell our products and services internationally and are subject to various risks relating to these international activities; if we fail to manage our international operations effectively, our business, financial condition and results of operations could be adversely affected. international sales of powerflow and our related products and services are important to our growth and profitability. in the fiscal year ended january31, 2012, 77% of our revenue was attributable to sales in international markets, and at april 30, 2012, we had 14offices in 8 countries. by doing business in international markets, we are exposed to risks separate and distinct from those we face in our domestic operations, and if we are unable to manage the various risks associated with supporting our international sales and service efforts effectively, the growth and profitability of our business may be adversely affected. engaging in international business inherently involves a number of other difficulties and risks, including: changes in foreign currency exchange rates; changes in a specific countrys or regions political or economic conditions, particularly in emerging markets; burdens of complying with a wide variety of foreign customs, laws and regulations; burdens of complying with united states laws regulating international business activities, including the united states foreign corrupt practices act and economic and trade sanctions regimes; natural disasters or outbreaks of infectious diseases affecting the regions in which our customers operate; unexpected changes in tariffs or trade protection measures; import or export licensing requirements and other restrictions on technology imports and exports; potentially negative consequences from changes in foreign government regulations, tax laws and regulatory requirements; 15 laws and business practices favoring local companies; difficulty in managing a geographically dispersed workforce in compliance with diverse local laws and customs; difficulties and costs of staffing and managing foreign operations; disproportionate management attention or company resources; changes in diplomatic and trade relationships; international terrorism and anti-american sentiment; possible future limitations on the ownership of foreign businesses; difficulties in enforcing agreements and collecting receivables through certain foreign legal systems; longer accounts receivable payment cycles; less effective protection of intellectual property; and the challenges of handling legal disputes in foreign jurisdictions. because most of our international sales are denominated in the currency of the country where the purchaser is located, as we continue to expand our direct sales presence in international regions, the portion of our accounts receivable and payment obligations denominated in foreign currencies continues to increase. as a result, increases or decreases in the value of the u.s. dollar relative to foreign currencies may affect our financial position, results of operations and cash flow. currently, our largest exposures to foreign exchange rates exist with respect to the euro and the japanese yen. we do not currently hedge our exposure to fluctuations in foreign exchange rates. any hedging policies we may implement in the future may not be successful, and the cost of those hedging techniques may have a significant negative impact on our operating results. our exposure to each of these risks may increase our costs, impair our ability to market and sell our products and require significant management attention. our business, financial position, results of operations and cash flows may be materially adversely affected by any of these risks.our effective tax rate may fluctuate, and we may incur obligations in tax jurisdictions in excess of amounts that have been accrued. we are subject to income taxes in both the united states and var | 1 |
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| RISK FACTORS An investment in the shares of Common Stock being offered hereby involves a high degree of risk. In addition to the other information in this Prospectus, potential purchasers should consider carefully the following risk factors in evaluating the Company, its business, and the shares of Common Stock offered hereby. This Prospectus contains certain forward-looking statements concerning certain aspects of the business of the Company. When used in this Prospectus, words such as "believe," "anticipate," "intend," "goal," "expect" and similar expressions may identify forward-looking statements. Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those contemplated in such forward-looking statements, including, without limitation, those set forth in the following risk factors and elsewhere in this Prospectus. Prospective investors are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this Prospectus. The Company undertakes no obligation to release publicly any revisions to these forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. The Company's actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors. FLUCTUATIONS IN DEMAND AND ANNUAL AND QUARTERLY OPERATING RESULTS The Company has experienced and may continue to experience significant annual and quarter-to-quarter fluctuations in its operating results. The Company's annual and quarterly operating results may fluctuate as a result of a variety of factors including: (i) customer demand, such as general economic conditions in the FPD industry, market acceptance of products of both the Company and its customers, changes in product mix, and the timing, cancellation or delay of customer orders and shipments; (ii) competition, such as competitive pressures on prices of the Company's products, as well as those of its customers, and the introduction or announcement of new products by competitors; (iii) manufacturing and operations, such as fluctuations in availability and cost of raw materials and production capacity, the transfer of equipment and personnel to the Company's new manufacturing facilities, and the hiring and training of additional staff; (iv) fluctuations in foreign currency exchange rates; (v) new product development, such as increased research, development and engineering, as well as marketing expenses associated with new product introductions and the Company's ability to introduce new products and technologies on a timely basis; (vi) sales and marketing, such as concentration of customers and discounts that may be granted to certain customers; and (vii) the cyclical nature of the capital equipment market. Because a significant portion of the Company's overhead is fixed, at least in the short-term, the Company's results of operations may be materially adversely affected if net sales decline for any reason. Further, although the Company has achieved productivity improvements in recent quarters, there can be no assurance of any future productivity improvements. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Quarterly Results of Operations. HIGHLY COMPETITIVE MARKET ENVIRONMENT Competition in the thin film coated glass for the LCD market is, and is expected to remain, intense. Several of the Company's competitors have substantially greater financial, technical, marketing and sales resources than the Company. There can be no assurance that the Company's present or future competitors will not exert increased competitive pressures on the Company. In particular, the Company may in the future experience pricing pressures as a result of a decline in industry demand, excess inventory levels, increases in industry capacity or the introduction of new technologies, and such price competition could adversely affect the Company's business, operating results, financial condition and prospects. For example, prices for much of the Company's TN thin film coated glass supplied to the LCD market declined by approximately 15% between January 1996 and June 1997. The Company is aware of plans by several competitors to increase production capacity in 1997 and 1998. Increases in industry capacity may result in intensified pricing pressures on the Company's products. The Company's competitive position also could be adversely affected by raw material price increases, which the Company may not be able to pass on to its customers but which certain of its vertically integrated current and potential competitors may be able to better absorb. To remain competitive, the Company must continue to invest in and focus upon research and development, product and process 5 6 innovation, as well as sales and customer support. There can be no assurance that the Company will be successful in such efforts or that such factors will not have a material adverse effect on the Company's business, operating results, financial condition or prospects. The Company's suppliers and/or customers could vertically integrate to manufacture the products produced by the Company. The Company's suppliers of thin glass are large, well-capitalized companies which could enter the LCD market by coating the glass they produce and supplying LCD manufacturers directly. Because glass is by far the Company's largest material cost, a manufacturer of glass desiring to enter this market could have a significant cost advantage. The Company is aware of two manufacturers of thin glass that also coat glass for the LCD market, Asahi Glass Company and Nippon Sheet Glass. Further, companies that manufacture equipment for coating thin film glass could begin producing thin film coated glass. One such equipment manufacturer, Balzers Process Systems/Leybold AG, is an investor in a Chinese joint venture which produces thin film coated glass. In addition, certain LCD manufacturers have vertically integrated to coat glass for LCDs and further vertical integration into certain areas of LCD manufacturing is expected. Any such vertical integration could have a material adverse effect on the Company's business, operating results, financial condition and prospects. See "Business -- Competition.UNCERTAINTIES RELATED TO COATING EQUIPMENT BUSINESS Until recently, the Company's business has been focused almost exclusively on the sale of thin film coated glass. Although the Company expects to continue to produce and sell thin film coated glass to the world FPD market, the Company's future growth potential depends in part upon the Company's success in the market for thin film systems. Sales of the Company's thin film systems depend in large part upon a prospective customer's decision to increase manufacturing capabilities and capacities or to respond to consumer demands for greater cost efficiencies by upgrading or expanding existing manufacturing facilities or constructing new manufacturing facilities, all of which typically involve significant capital expenditures. Further, customers for the Company's thin film coated glass could decide to purchase thin film systems to bring some or all of their thin film coated glass requirements in-house, thus adversely affecting sales of thin film coated glass by the Company to such customers. The Company is currently building systems for two such customers. Systems sales also may be affected by changes in the market for different types of displays and customers' decisions to begin internal production of glass coatings rather than rely on an outside supplier such as the Company. The sales cycle of the Company's thin film coating systems is lengthy due to the customer's evaluation of its ordered system and completion of any necessary upgrades, expansion or construction of facilities. The Company may expend substantial funds and management effort during the sales cycle. In addition, the cyclicality and rapid technological change in the thin film coated glass industry may cause prospective customers to postpone decisions regarding major capital expenditures, such as the Company's systems. With respect to the development of its systems business, the Company is subject to the risks inherent in the operation or the development of a new business, including risks associated with attracting and servicing a customer base, manufacturing products in a cost-effective and profitable manner, managing the expansion of a business operation and attracting and retaining qualified engineering, manufacturing and marketing personnel. Because of rapid changes in the FPD market, which are expected to continue, it is difficult to predict whether or where future growth may occur, or at what rate certain aspects will grow, if at all. Further, changes in technology could render the Company's systems less attractive. If the market for the Company's thin film systems fails to grow, or grows more slowly than anticipated, the Company's business, operating results, financial condition and prospects could be materially adversely affected. See "Business -- Competition.INTERNATIONAL MARKETS Sales to international customers represented approximately 84%, 82% and 83% of the Company's gross sales in fiscal 1995, 1996 and 1997, respectively. The Company's principal international markets are China (including Hong Kong), Korea, Japan, Taiwan and the Netherlands. The Company believes that international sales will continue to represent a significant portion of its gross sales, and that it will be subject to the normal risks of conducting business internationally, including unexpected changes in regulatory requirements, imposition of government controls, political and economic instabilities, export license requirements, foreign exchange risks, tariffs and other barriers, difficulties in staffing and managing foreign sales operations 6 7 potentially adverse tax consequences. In addition, the laws of certain foreign countries may not protect the Company's proprietary rights to the same extent as do the laws of the United States. See "Business -- Proprietary Rights." Other risks inherent in the Company's international business include greater difficulties in accounts receivable collection, the potential of protective trade activities or laws and the burdens of complying with a wide variety of foreign laws. See "Business -- Sales, Marketing, and Customers." The Company's business, operating results, financial condition or growth could be materially adversely affected by these risks. The Company's international sales are generally denominated in dollars, although a portion of its sales to Japanese customers are denominated in yen. In fiscal 1997, approximately 13% and 87% of the Company's total gross sales were denominated in yen and dollars, respectively. Any strengthening of the dollar in relation to the currencies of the Company's competitors or customers could adversely affect the Company's competitiveness. Although a strengthening dollar may result in some offsetting cost reductions on the raw materials imported by the Company, there can be no assurance that such cost reductions would enable the Company to remain competitive. Moreover, a strengthening of the dollar or other competitive factors could put pressure on the Company to denominate a greater portion of its Japanese sales in yen, thereby increasing the Company's exposure to fluctuations in the dollar-yen exchange rate. There can be no assurance that fluctuations in exchange rates will not adversely affect the Company's competitive position or result in foreign exchange losses, either of which could materially adversely affect the Company's business, operating results, financial conditions and prospects. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Overview.LIMITED SOURCES OF SUPPLY There are relatively few manufacturers of thin glass, which raw material accounts for a majority of the Company's materials cost. The Company currently relies primarily on four glass suppliers, Pilkington Micronics, Ltd., Glaverbel Societe Anonyme, Central Glass Co., Ltd., and Nippon Sheet Glass Co., Ltd., all of which are located outside the United States. The Company does not have long-term supply contracts with any of these suppliers, and thus has no contractual assurance of a firm price over an extended term or of a long-term commitment to supply product. In periods of short supply, the Company could have difficulty obtaining the necessary quantities of glass at a competitive cost. Further, the Company operates on a "just-in-time" inventory basis in ordering its glass and other materials and therefore maintains only limited inventories, increasing the operating risks associated with supply interruptions. Such interruptions could occur for numerous reasons, including labor difficulties at some point in the chain of manufacturing or distribution. In addition, the Company may not be able to pass raw material price increases along to its customers, especially in periods of soft demand for the Company's products or excess capacity. Current and potential competitors of the Company that both manufacture and coat glass could be able to better absorb such raw material cost increases due to their vertical integration. If the Company were to experience significant delays, interruptions, or shortages in its material supply or material supplier price increases, the Company's business, operating results, financial condition and prospects could be materially adversely affected. See "Business -- Suppliers.RAPID TECHNOLOGICAL CHANGE The market for thin film coated glass is characterized by rapid change. The Company's future success depends upon its ability to introduce new products, improve existing products and processes to keep pace with technological and market developments, and to address the increasingly sophisticated and demanding needs of its customers. In order to remain competitive, the Company believes it must continue to invest in research and development. The Company expects to increase its research and development expenditures in fiscal 1998 which could adversely affect fiscal 1998 operating results. Technological changes, process improvements or operating improvements which could adversely affect the Company include: (i) development of new technologies which improve manufacturing efficiency of the Company's competitors; (ii) changes in product requirements of the Company's customers; (iii) significant changes in the way coatings are applied to glass for LCDs; and (iv) other changes such as improvements in the design of cathodes. If the Company does not adapt to such changes or improvements the Company's competitive position, operations and prospects would 7 8 be materially, adversely affected. In addition, there are alternative technologies to sputtering technology for three of the thin film coating layers used in PDPs. Materials applied by the Company to thin glass to provide conductivity or other properties are generally available and are not patented. Development of a new material which improves the performance of thin film coated glass and better addresses customer needs could, if not adopted by the Company, have a material adverse effect on the Company's operations and prospects. There can be no assurance that the Company will be successful in meeting the demands of the marketplace or that one or more of these factors will not have a material adverse effect on the Company's business, operating results, financial condition or prospects. See "Business -- Products and Manufacturing.EVOLVING FPD MARKET The Company believes that much of the growth in the FPD market will be in higher information content FPDs, such as STN LCDs, active matrix LCDs ("AM LCDs"), and PDPs. See "Business -- Products and Manufacturing." During fiscal 1997 less than 10% of the Company's coated glass revenues were derived from the sale of coated glass used in higher information content FPDs. Due in part to strong customer demand for thin film coated glass for lower information content displays, the Company has to date directed most of its production capacity to the TN coated glass which is presently used in such displays. While the Company has recently made and is making investments in additional production capacity for STN coated glass, there can be no assurance that the Company will be able to successfully expand its position in the market for thin film coated glass for higher information content FPDs. A reduction in the market for thin film coated glass for TN LCDs as a result of a shift in demand toward higher information content displays could materially adversely affect the Company's results of operations and could be to the advantage of competitors of the Company who may currently have greater capacity to produce thin film coated glass for STN or AM LCDs. This could affect the Company's operating results while it transfers resources to the manufacture of thin film coated glass for STN LCDs. See "Business -- Strategy" and "-- Products and Manufacturing." The Company's business depends substantially on the purchasing requirements of manufacturers of FPDs, which, in turn, depend upon the current and anticipated market demand for FPDs. Sales of thin film coated glass to these manufacturers are expected to continue to represent a significant portion of the Company's net sales. Although the market for FPDs has experienced significant growth, there can be no assurance that such growth will continue at current rates or at all, or that any growth will have a positive impact on the Company's future business or results of operations. The Company's business, operating results, financial condition and prospects would be materially adversely affected by any future downturns in the FPD market. DEPENDENCE ON KEY CUSTOMERS; LIMITED NUMBER OF CUSTOMERS The Company's ten largest customers accounted for, in the aggregate, approximately 63%, 56% and 59% of the Company's gross sales in fiscal years 1995, 1996 and 1997, respectively. The loss of, or a significant reduction of purchases by, one or more of these customers would materially adversely affect the Company's business, operating results, financial condition and prospects. The Company expects that sales of its products to relatively few customers, particularly in the LCD market, will continue to account for a high percentage of its revenue in the foreseeable future. In addition, in the LCD market, there are a limited number of potential customers. The Company has not entered into long-term agreements with its customers and none are obligated to continue to buy their thin film coated glass from the Company. Moreover, in the event that customers purchase thin film systems from the Company or one of its competitors and begin coating the glass in-house, sales to those customers may decrease sharply. If such lost sales are not replaced on a timely basis by new orders of thin film coated glass or capital equipment from other customers, the Company's business, operating results, financial condition and prospects could be materially adversely affected. See "--Fluctuations in Demand and Annual and Quarterly Operating Results" and "Business -- Sales, Marketing, and Customers.MANAGEMENT OF GROWTH In order to support potential future growth, the Company will need to expand its facilities, improve its productivity, add additional production lines, enhance its management information systems and add additional 8 9 management personnel. There can be no assurance that the Company will continue to grow or be effective in managing its future growth, expanding its facilities and operations or attracting and retaining additional qualified personnel. Any failure to effectively manage growth, expand its operations or attract and retain personnel could have a material adverse effect on the Company's business, operating results, financial condition, and prospects. See "-- Fluctuations in Demand and Annual and Quarterly Operating Results" "-- Dependence on Management and Other Key Personnel," and "Business -- Employees.DECLINING AVERAGE SELLING PRICES; DEPENDENCE UPON PRODUCTIVITY IMPROVEMENTS Many of the Company's customers are under continuous pressure to reduce prices and, therefore, the Company expects to continue to experience downward pricing pressures on its thin film coated glass products. The Company is frequently required to commit to price reductions before it has determined that assumed cost reductions can be achieved. To offset declining average sales prices, the Company must achieve manufacturing efficiencies and cost reductions and obtain orders for higher volume products. If the Company is unable to offset declining average sales prices, the Company's gross margins will decline, and such decline will materially adversely affect the Company's business, operating results, financial condition and prospects. See "-- Fluctuations in Demand and Annual and Quarterly Operating Results" and "Management's Discussion and Analysis of Financial Condition and Results of Operations." The Company has improved its manufacturing productivity in recent years, enabling increased capacity and sales. The continued growth of the Company is substantially dependent upon the Company's ability to continue to improve the productivity of its existing manufacturing assets. The inability of the Company to improve productivity could have a material adverse effect on the Company's business, operating results, financial condition and prospects. DEPENDENCE ON MANAGEMENT AND OTHER KEY EMPLOYEES The Company's success during the foreseeable future will depend largely upon the continued services of its executive officers, and certain other key employees. These executive officers and key employees include: President and Chief Executive Officer, Cecil Van Alsburg; Chief Operating Officer and Executive Vice President, Thomas Edman; Vice President -- Research, John S. Chapin; Vice President -- Engineering, C. Richard Condon; Vice President -- Operations -- Thin Film Coatings, Mark Auble; Vice President -- Sales and Marketing, Graeme Hennessey; Chief Financial Officer, Thomas D. Schmidt; Director of Operations -- Thin Film Systems, Russell W. Black; and Advanced Development Manager, John J. Kester. The loss of the services of one or more of the executive officers or other key employees could materially adversely affect the Company's business. Cecil Van Alsburg, the Company's President and Chief Executive Officer, presently intends to transition day-to-day management responsibility for the Company to Thomas Edman, the Company's current Chief Operating Officer and Executive Vice President, over the next 18 months. The Company does not have employment agreements or key-man life insurance on any of its executive officers or other key employees. The Company's future success will be dependent in part upon the Company's ability to attract and retain additional qualified managers, engineers and other employees. The Company's business, operating results, financial condition or growth could be materially adversely affected if the Company were unable to attract, hire, assimilate, and train these employees in a timely manner. See "Business -- Employees" and "Management.NEW FACILITY EXPANSION The establishment of the Company's new manufacturing facility and the development and implementation of additional production lines will entail risks related to new production facilities and will require an investment of the Company's capital. As part of its manufacturing expansion, the Company will need to hire and train a substantial number of new manufacturing workers. The availability of skilled and unskilled workers in the Denver metropolitan area, the site of the Company's new manufacturing facility, is limited due to a relatively low unemployment rate. There can be no assurance that the Company will successfully develop improved processes, implement additional production lines or successfully operate its new facility. There can be no assurance that the Company will be able to successfully complete construction of its new manufacturing facility on a timely basis or at all, or that such new facility will result in greater manufacturing capacity or 9 10 lower manufacturing costs than those currently experienced by the Company. The Company will incur duplicate facilities and operating costs during its transition from its existing manufacturing facility to its new manufacturing facility. In addition, the Company will incur certain start-up expenses at the new facility and may experience interruptions in production during such transition. These factors will adversely affect the Company's fiscal 1998 operating results, and may adversely affect fiscal 1999 operating results. Failure to open its new manufacturing facility and increase capacity on a timely basis could damage customer relationships, cause lost opportunities and have a material adverse effect on the Company's business, results of operations and financial condition. See "Use of Proceeds" and "Business -- Facilities.SUBSTANTIAL CONTROL BY MANAGEMENT AND PRINCIPAL SHAREHOLDERS Upon completion of this offering, the Company's officers, directors and their affiliates will retain voting control of approximately 42% of the Company's Common Stock (38% if the underwriters' over-allotment option is exercised in full). As a result, these shareholders, acting together, would be able to influence the outcome of actions requiring shareholder approval, such as the election of directors, amendments to the Company's articles of incorporation, mergers and other actions by shareholders with respect to the business and affairs of the Company. In addition, the voting power of these shareholders under certain circumstances could have the effect of delaying or preventing a change in control of the Company. See "Management," "Principal and Selling Shareholders" and "Description of Capital Stock.LIMITED PROTECTION OF PROPRIETARY RIGHTS The Company relies primarily upon trade secret laws and employee and third-party nondisclosure agreements to protect its proprietary technology. There can be no assurance that the steps taken by the Company to protect its proprietary rights will be adequate to prevent misappropriation of such rights or that third parties will not independently develop a functional equivalent or superior technology. The Company is not aware that its products or other proprietary rights infringe the proprietary rights of third parties. There can be no assurance, however, that third parties will not assert infringement claims against the Company in the future or that any such claims will not require the Company to enter into license agreements or result in protracted and costly litigation, regardless of the merits of such claims. In addition, there can be no assurance that the Company will be able to obtain licenses to dispute a third-party technology or that such licenses, if available, would be available on commercially reasonable terms. There can be no assurance that these factors will not adversely affect the Company's business, operating results, financial condition or growth. See "Business -- Proprietary Rights.ENVIRONMENTAL REGULATIONS The Company uses hazardous chemicals in producing its products. As a result, the Company is subject to a variety of local, state and federal governmental regulations relating to the storage, discharge, handling, emission, generation, manufacture and disposal of toxic or other hazardous substances used to manufacture the Company's products. The failure to comply with current or future regulations could result in the imposition of substantial fines on the Company, suspension of production, alteration of its manufacturing processes or cessation of operations. GENERAL ECONOMIC CONDITIONS A deterioration in the level of consumer confidence and general economic conditions could result in a decline of purchases and production by the Company's customers and thus have an adverse effect on the sale of the Company's products. A high percentage of the Company's products are used in LCDs for many consumer electronic products. In addition, the Company's products are used in certain displays used for commercial and industrial purposes. Unfavorable economic conditions or factors that relate to these industries, particularly any conditions that might result in reductions in capital expenditures by end customers, could have a material adverse effect on the Company's business, operating results, financial conditions or growth. See "Business -- Products and Manufacturing.ABSENCE OF PRIOR TRADING MARKET; POTENTIAL VOLATILITY OF STOCK PRICE Prior to this offering there has been no public market for the Company's Common Stock and there can be no assurance that following this offering an active trading market will develop or be maintained. The initial 10 11 public offering price was determined by negotiations among the Company, the Selling Shareholders and the representatives of the underwriters and may not be indicative of prices that will prevail in the trading market following this offering. For a description of the factors considered in determining the initial public offering price, see "Underwriting." In addition, the stock market has historically experienced volatility which has particularly affected the market prices of securities of many technology-based companies and which sometimes has been unrelated to the operating performances of such companies. Factors such as announcements of technological developments for products by the Company or its competitors, fluctuations in foreign exchange rates, variations in the Company's quarterly operating results, or general, economic or stock market conditions may significantly impact the market price of the Common Stock after this offering. Furthermore, any adverse changes in the market price of common stock of other similar companies may adversely affect the market price of the Company's Common Stock, irrespective of whether there has been any deterioration in the Company's business, operating results, financial condition or prospects. ANTITAKEOVER PROVISIONS; POSSIBLE ISSUANCE OF PREFERRED STOCK The Company's Articles of Incorporation and Bylaws contain provisions which may have the effect of delaying, deferring or preventing a change in control of the Company, may discourage bids for the Common Stock at a premium over the market price of the Common Stock and may adversely affect the market price of the Common Stock and the voting and other rights of the holders of the Common Stock. These provisions include, but are not limited to, a classified Board of Directors, fair price provisions and the authority of the Board to issue up to 1,000,000 shares of preferred stock and to fix the price, rights, preferences, privileges and restrictions, including voting rights, of those shares without further vote or action by the Company's shareholders. The rights of the holders of Common Stock will be subject to, and may be adversely affected by, the rights of the holders of any preferred stock that may be issued in the future. The Company has no present plans to issue shares of preferred stock. See "Description of Capital Stock.SHARES ELIGIBLE FOR FUTURE SALE Upon completion of this offering, the 1,900,000 shares of Common stock offered hereby (2,185,000 shares of Common Stock if the underwriters' over-allotment is exercised in full), will be freely tradable by persons other than "affiliates" of the Company without restriction. The remaining 1,399,998 shares of Common Stock held by officers, directors and existing shareholders of the Company (1,351,437 shares if the underwriters' over-allotment is exercised in full) are subject to "lockup" agreements under which the holders of such shares have agreed not to sell or otherwise dispose of any shares of Common Stock without the prior written consent of Needham & Company, Inc., for a period of 180 days after the date of this prospectus. Such shares of Common Stock will be eligible for resale after the expiration of the lockup period, subject to the provisions of Rule 144 under the Securities Act of 1933, as amended (the "Act"). In addition, the Company intends to file registration statements under the Act covering the sale of 479,000 shares of Common Stock reserved for issuance under the Company's 1993 Stock Option Plan, 1997 Stock Option Plan and the 1997 Employee Stock Purchase Plan. Shares acquired through the exercise of options by parties to lockup agreements will be subje | 1 | < 0.1% | |
| risk factors an investment in our common stock involves a high degree of risk. you should carefully consider the risks described below and all of the other information contained in this prospectus before deciding whether to purchase our common stock. the risks and uncertainties described below are not the only risks and uncertainties we face. additional risks and uncertainties not presently known to us or that we currently deem immaterial may also impair our business operations. if any of the following risks actually occur, our business, financial condition and results of operations would suffer. in such case, the trading price of our common stock could decline, and you may lose all or part of your investment in our common stock. risks related to our businessour limited history of sales of our key products makes it difficult to evaluate our prospects. most of our key products have only been sold in significant quantities for a short time. for example, our stmp 3410 portable audio soc was introduced in the fourth quarter of 2001, but did not begin shipping in significant quantities until the second quarter of 2002. sales of this product are highly dependent upon continued acceptance of portable mp3 music players by consumers. since we cannot accurately monitor sell-through of our customers mp3 players which contain our portable audio socs, it is possible that some of these products may not be selling through. as a result, our customers could experience inventory growth that could cause them to purchase fewer products from us or seek to return products to us in the future. there can be no assurance that our customers have not or will not place orders in excess of their requirements in response to actual or perceived shortages in the supply of our ics. in such event, it will be more difficult for us to forecast our future revenues and budget our operating expenses, and our operating results would be adversely affected to the extent such excess orders are cancelled or rescheduled. we have limited historical financial data from which to predict our future sales and operating results for our portable audio socs and other key products that we have recently introduced. our limited operating experience with these products, combined with the rapidly evolving nature of the markets in which we sell our products, and other factors which are beyond our control, limit our ability to accurately forecast quarterly or annual sales. because most of our expenses are fixed in the short term or incurred in advance of anticipated sales, we may not be able to decrease our expenses in a timely manner to offset any shortfall in sales. we are currently expanding our staffing and increasing our expenditures to support future growth. if our growth does not materialize, we would incur higher losses. we do not expect to sustain our recent growth rate. due primarily to the introduction of our second generation portable audio soc in 2002, we have experienced significant revenue growth and have gained significant market share in a relatively short period of time. specifically, our annual revenues increased from $24.4 million in 2001 to $30.9 million in 2002, and our revenues increased from $9.1 million for the six months ended june 30, 2002 to $32.5 million for the six months ended june 30, 2003. however, we do not expect similar revenue growth or market share gains in future periods. accordingly, you should not rely on the results of any prior quarterly or annual periods as an indication of our future operating performance.we have a history of losses and may continue to incur losses. we incurred net losses of approximately $22.7 million, $18.4 million and $8.3 million for the years ended december 31, 2000, 2001 and 2002, respectively, and net income of $0.2 million for the six months ended june30, 2003. as of june 30, 2003, we had an accumulated deficit of approximately $52.9 million. despite realizing net income in the six months ended june 30, 2003, we may incur losses in the future. we expect our operating expenses to increase as we pursue our strategic objectives. our results of operations for the six months ended june30, 2003 include non-cash charges of $1.1 million related to stock based compensation and $8.3million related to a deemed dividend on the sale of preferred stock. we will continue to incur stock-based compensation and deemed dividend charges in the future as a result of past option grants and preferred stock 5 sales. our ability to become profitable depends on the rate of growth of our target markets, the continued market acceptance of our customers products, the competitive position of our products, and our ability to develop new products. even if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or an annual basis.we depend on a few key customers for a substantial majority of our sales and the loss of, or a significant reduction in orders from, any of them would likely significantly reduce our revenues. for the years ended december 31, 2000, 2001 and 2002 and for the six months ended june 30, 2003, sales to our top five customers accounted for approximately 89.7%, 92.9%, 75.7% and 70.9%, respectively, of our revenues. our operating results in the foreseeable future will likely continue to depend on sales to a relatively small number of customers, as well as the ability of these customers to sell products that use our ics. our revenues would likely decline if one or more of these customers were to significantly reduce, delay or cancel their orders for any reason. in addition, any difficulty in collecting outstanding amounts due from our customers, particularly customers who place large orders, would harm our financial performance. because our sales are made by means of standard purchase orders rather than long term contracts, we cannot assure you that our customers will continue to purchase our products at current levels, or at all.we rely primarily on a small number of distributors to market and distribute our products, and if we fail to maintain or expand these sales channels, our revenues would likely decline. sales to a small number of distributors generate a significant amount of our revenues. our sales through distributors accounted for 22.2%, 45.5%, 65.5% and 77.6% of our revenues for the years ended december31, 2000, 2001 and 2002 and the six months ended june 30, 2003, respectively. our sales to holystone, a distributor, accounted for 12.8%, 28.2%, 35.0% and 38.2% of our revenues in the years ended december 31, 2000, 2001 and 2002 and the six months ended june 30, 2003, respectively. if holystone or our other distributors were to materially reduce their purchases from us, our business, financial condition and results of operations would suffer. our business will depend on our ability to maintain and expand our relationships with distributors, develop additional channels for the distribution and sale of our products and effectively manage these relationships. our distributors decide whether to include our products among those that they sell and may carry and sell product lines that are competitive with ours. because our distributors are not required to make a specified minimum level of purchases from us, we cannot be sure that they will prioritize selling our products. as we continue to expand our indirect sales capabilities, we will need to manage the potential conflicts that may arise within our indirect sales force. we also rely on our distributors to accurately and timely report to us their sales of our products and to provide certain engineering support services to customers. our inability to obtain accurate and timely reports and to successfully manage these relationships would adversely affect our business and financial results.our business is highly dependent on the consumer electronics market, which is characterized by short product life cycles, fluctuations in demand and seasonality, and subject to risks related to product transitions and supply of other components. we derive a substantial portion of our revenues from a limited number of products that are used in consumer electronic devices. the consumer electronics market is characterized by intense competition, rapidly evolving technology, and ever-changing consumer preferences. these factors result in the frequent introduction of new products, short product life cycles and significant price competition. the dynamic nature of this market limits our, as well as our customers, ability to accurately forecast quarterly and annual sales. if we, or our customers, are unable to manage product transitions, our business and results of operations could be negatively affected. for example, if our customers transition from one type of flash memory to another type and our product is not compatible with the new type of flash memory, sales of our ics would be adversely affected if we were unable to update our product in a timely manner. in addition, we are subject to the risk of supply problems with 6 other components of the end products of our customers. for example, if our customers could not obtain sufficient supplies of flash memory, a key component in many portable compressed audio players, the sales of our products that are also included in such devices would be adversely affected. furthermore, continuing technological advancement in consumer electronic devices, which is a significant driver of customer demand, is largely beyond our control. the expansion of the consumer electronics market in general, and the demand for mp3 products in particular, may be adversely impacted by the enforcement of limits on file sharing and downloadable music. the major record labels have complained about consumers downloading music off of the internet without paying any fees or royalties to the owners of that music. in particular, the recording industry association of america, a recording industry trade group, has announced recently that it plans to sue hundreds of individuals who illegally distribute copyrighted songs over the internet. if the record labels, other music producers, or other parties are successful in limiting the ability of consumers to obtain free music on the internet, the demand for consumer electronic devices such as mp3 players that use our ics may decline. any decline in consumer spending relating to general economic conditions, future terrorist attacks or disease outbreaks, such as severe acute respiratory syndrome, or sars, could also limit the expansion of the consumer electronics market, thus adversely affecting our business. because many of our ics are designed for use in consumer electronic products, such as portable compressed audio players, pcs, and dvd players, we expect our business to be subject to seasonality, with increased revenue in the third and fourth quarters of each year, when customers place orders to meet year-end holiday demand. however, our recent rapid growth in revenues makes it difficult for us to assess the impact of seasonal factors on our business. in particular, strong sales of our portable audio socs resulted in increased revenues during the first quarter of 2003 compared to the fourth quarter of 2002, offsetting seasonal demand factors. if we or our customers are unable to ramp up production of new or existing products to meet any increases in demand due to seasonality or other factors, our revenues from such products would be adversely affected.because of the lengthy sales cycles for our products and the fixed nature of a significant portion of our expenses, we may incur substantial expenses before we earn associated revenues and may not ultimately achieve our forecasted sales for our products. our sales cycles can take up to 12 months to complete and volume production of products that use our ics can take an additional 3 to 6 months to be achieved, if at all. sales cycles for our products are lengthy for a number of reasons: our customers usually complete an in-depth technical evaluation of our products before they place a purchase order; the commercial adoption of our products by oems and original device manufacturers, or odms, is typically limited during the initial release of their product to evaluate product performance and consumer demand; new product introductions often center around key trade shows and failure to deliver a product prior to such an event can seriously delay introduction of a product; and the development and commercial introduction of products incorporating new technology frequently are delayed. as a result of our lengthy sales cycles, we may incur substantial expenses before we earn associated revenues because a significant portion of our operating expenses is relatively fixed and based on expected revenues. the lengthy sales cycles of our products make forecasting the volume and timing of orders difficult. in addition, the delays inherent in lengthy sales cycles raise additional risks that customers may cancel or change their orders. our sales are made by purchase orders. because industry practice allows customers to reschedule or 7 cancel orders on relatively short notice, backlog is not always a good indicator of our future sales. if customer cancellations or product changes occur, this could result in the loss of anticipated sales without allowing us sufficient time to reduce our inventory and operating expenses.we derive a substantial portion of our revenues from our portable audio socs, the selling prices of our products tend to decline over time, and if we are unable to develop successful new products in a timely manner, our operating results and competitive position could be harmed. our recent revenue growth has been primarily from sales of our portable audio socs. our future success depends on our ability to develop successful new products in a timely and cost-effective manner. we are required to continually evaluate expenditures for planned product developments and choose among alternatives based upon our expectations of future market trends. we cannot assure you that we will be able to develop and introduce new or enhanced products in a timely and cost-effective manner or that our products will generate significant revenues. the development of our ics is highly complex, and successful product development and market acceptance of our products depend on a number of factors, including: our accurate prediction of the changing requirements of our customers; our timely completion and introduction of new designs; the availability of third-party manufacturing, assembly, and test capacity; the ability of our foundries to achieve high manufacturing yields for our products; our ability to transition to smaller manufacturing process geometries; the quality, price, performance, power efficiency and size of our products and those of our competitors; our management of our indirect sales channels; our customer service capabilities and responsiveness; the success of our relationships with existing and potential customers; and changes in industry standards. as is typical in the semiconductor industry, the selling price of a product tends to decline significantly over the life of the product. if we are unable to offset any reductions in the selling prices of our products by introducing new products at higher prices or by reducing our costs, our revenues, gross margins and operating results would be adversely affected.we rely on third-party contractors to manufacture, assemble and test our products and our failure to successfully manage our relationships with these contractors could damage our relationships with our customers, decrease our sales, and limit our growth. we rely on third-party contractors to manufacture, assemble, and test our ics. we currently do not have long-term supply contracts with any of our third-party vendors. none of our third-party vendors are obligated to perform services or supply products to us for any specific period, or in any specific quantities, except as may be provided in a particular purchase order. there are significant risks associated with our reliance on these third-party contractors, including: potential price increases; capacity shortages; their inability to increase production and achieve acceptable yields on a timely basis; reduced control over delivery schedules and product quality; 8 increased exposure to potential misappropriation of our intellectual property; limited warranties on wafers or products supplied to us; shortages of materials that foundries use to manufacture our products; failure to qualify a selected supplier; labor shortages or labor strikes; and actions taken by our third-party contractors that breach our agreements.because future foundry capacity may be limited and because we do not have long-term agreements with our foundries, we may not be able to secure adequate manufacturing capacity to satisfy the demand for our products. presently we utilize two foundries to manufacture our portable audio socs and one principal foundry to manufacture our audio codecs. in general, each of our products is manufactured at a single foundry. we provide these foundries with monthly rolling forecasts of our production requirements; however, the ability of each foundry to provide wafers to us is limited by the foundrys available capacity. moreover, the price of our wafers will fluctuate based on changes in available industry capacity. we do not have long term supply contracts with any of our foundries. therefore, our foundry suppliers could choose to prioritize capacity for other customers, particularly larger customers, reduce or eliminate deliveries to us on short notice or increase the prices they charge us. accordingly, we cannot be certain that our foundries will allocate sufficient capacity to satisfy our requirements. if we are not able to obtain foundry capacity as required, our relationships with our existing customers would be harmed and our sales would likely decline.if our foundries do not achieve satisfactory yields or quality, our sales could decrease, and our relationships with our customers and our reputation may be harmed. minor deviations in the ic manufacturing process can cause substantial decreases in yields, and in some cases, cause production to be suspended. for example, a design error by one of our third-party foundries during our third-party foundries, other subcontractors and many of our customers and end customers are located in the pacific rim, an area subject to significant earthquake risk and adverse consequences related to the outbreak of sars. all of the principal foundries that manufacture our products and all of the principal subcontractors that assemble, package, and test our products are located in either south korea, singapore, hong kong, or taiwan. many of our customers are also located in these areas. the risk of an earthquake in these pacific rim locations is significant. the occurrence of an earthquake or other natural disaster near these foundries or subcontractors could result in damage, power outages and other disruptions that impair their production and assembly capacity. any 9 disruption resulting from such events could cause significant delays in the production or shipment of our products until we are able to shift our manufacturing, assembling, packaging or production testing from the affected contractor to another third-party vendor. while we have some foundry capacity in the united states, we may not be able to increase our foundry capacity in the united states, or obtain other alternate foundry capacity on favorable terms, if at all. the recent outbreak of sars has curtailed travel to and from certain countries (primarily in the asia-pacific region) and limited travel and shopping within those countries. in addition, outbreaks of disease or other disasters could limit consumer demand for our ics or the products that use our ics.our recent expansion has placed a significant strain on our management, personnel, systems and resources, and the continued success of our business depends on our ability to successfully manage any future expansion. our business has expanded rapidly, and we expect that further expansion will be required to address the potential growth in our customer base. this expansion has placed, and any future expansion will continue to place, a significant strain on our management, personnel, systems and resources. if we are unable to manage our growth effectively, we may not be able to take advantage of market opportunities, develop new products, enhance our technological capabilities, satisfy customer requirements, execute on our business plan or respond to competitive pressures. to successfully manage our growth, we believe we must effectively: hire, train, integrate and manage additional qualified engineers for research and development activities, sales and marketing personnel, and financial and information technology personnel; continue to enhance our customer resource management and manufacturing management systems; expand and upgrade our core technologies; and manage multiple relationships with our distributors, suppliers, and other third parties.we may experience significant period-to-period quarterly and annual fluctuations in our revenues and operating results, which may result in volatility in our stock price. we have in the past and may in the future experience significant period-to-period fluctuations in our revenues and operating results due to a number of factors, including: the timing and volume of purchase orders and cancellations from our customers; the rate of acceptance of our products by our customers; the rate of growth of the market for analog-intensive, mixed-signal ics; fluctuation and seasonality in demand for our products; increases in prices charged by our foundries and other third-party subcontractors; the availability of third-party foundry capacity; the availability of components used in our customers products, such as flash memory, which is a key component in many portable compressed audio players; fluctuations in manufacturing yields; the difficulty of forecasting and managing our inventory and production levels; the rate at which new markets emerge for products we are currently developing or our ability to develop new products; our involvement in litigation; natural disasters, particularly earthquakes, or disease outbreaks, such as the recent outbreak of sars, affecting countries in which we conduct our business or in which our products are manufactured, assembled, or tested; 10 changes in our product mix; and the evolution of industry standards. any variations in our quarter-to-quarter performance may cause our stock price to fluctuate. it is likely that in some future period our operating results will be below the expectations of public market analysts or investors. if this occurs, our stock price may drop, perhaps significantly.we are subject to the highly cyclical nature of the semiconductor industry. the semiconductor industry is highly cyclical. the industry has experienced significant downturns, often in connection with, or in anticipation of, maturing product cycles (of both semiconductor companies and their customers products) and declines in general economic conditions. these downturns have been characterized by production overcapacity, high inventory levels and accelerated erosion of average selling prices. any future downturns could significantly harm our sales, reduce our profitability or increase our losses for a prolonged period of time. from time to time, the semiconductor industry also has experienced periods of increased demand and production capacity constraints. we may experience substantial changes in future operating results due to general semiconductor industry conditions, general economic conditions and other factors. because the markets in which we compete are highly competitive and many of our competitors have greater resources than us, we cannot be certain that our products will compete favorably in the marketplace. we face competition from a relatively large number of competitors in each of our targeted markets. in the pc and consumer audio markets, we compete primarily with akm, analog devices, c-media, cirrus logic, and realtek. in the portable compressed audio market, our principal competitors include cirrus logic, micronas, philips semiconductor, samsung, and texas instruments. within the usb peripherals market, we compete primarily with kc technology and other companies providing various multi-chip solutions. we expect to face increased competition in the future from our current and emerging competitors. in addition, some of our customers have developed and other customers could develop their own internal ics that could replace their need for our products or otherwise reduce demand for our products. the consumer electronics market, which is a principal end market for our ics, has historically been subject to intense price competition. in many cases, low cost, high volume producers have entered markets and driven down profit margins. if a low cost, high volume producer should develop products that are competitive with our products, our sales and profit margins would suffer. many of our current and potential competitors have longer operating histories, greater name recognition, access to larger customer bases and significantly greater financial, sales and marketing, manufacturing, distribution, technical and other resources than us. as a result, they may be able to respond more quickly to changing customer demands or to devote greater resources to the development, promotion and sales of their products than we can. our current and potential competitors may develop and introduce new products that will be priced lower, provide superior performance or achieve greater market acceptance than our products. in addition, in the event of a manufacturing capacity shortage, these competitors may be able to obtain capacity when we are unable to do so. furthermore, our current or potential competitors have established or may establish, financial and strategic relationships among themselves or with existing or potential customers or other third parties to increase the ability of their products to address the needs of our prospective customers. accordingly, it is possible that new competitors or alliances among competitors could emerge and rapidly acquire significant market share, which would harm our business. we depend on our key personnel to manage our business effectively, and if we are unable to retain our current personnel and hire additional personnel, our ability to develop and successfully market our products could be harmed. we rely heavily on the services of our key employees, including ronald edgerton, our chief executive officer. in addition, our analog designers and other key technical personnel represent a significant asset and serve as the source of our technological and product innovations. we believe our future success will depend upon our ability to retain these key employees and our ability to attract and retain other skilled managerial, engineering and sales and marketing personnel. any of our current employees may terminate their employment with us at any time. the competition for such personnel is intense in our industry. we may not be successful in attracting and retaining sufficient numbers of technical personnel to support our anticipated growth. the loss of any of our key employees or our inability to attract or retain qualified personnel, including engineers, could delay the development and introduction of, and negatively impact our ability to sell, our products.our products are complex and may require modifications to resolve undetected errors or failures in our hardware and software, which could lead to an increase in our costs, a loss of customers or a delay in market acceptance of our products. our ics are complex and may contain undetected hardware and software errors or failures when first introduced or as new versions are released. these errors could cause us to incur significant re-engineering costs, divert the attention of our engineering personnel from product development efforts and cause significant customer relations and business reputation problems. if we deliver products with errors, defects or bugs, our credibility and the market acceptance and sales of our products could be harmed. defects could also lead to liability for defective products as a result of lawsuits against us or against our customers. we have agreed to indemnify our customers in some circumstances against liability from defects in our products. a successful product liability claim could require us to make significant damage payments.we have substantial international sales, which expose us to additional business risks including increased logistical complexity and political instability. our sales outside of the u.s. as a percentage of total sales were 69.5%, 85.0%, 98.3% and 99.8% for the years ended december 31, 2000, 2001 and 2002, and the six months ended june 30, 2003, respectively. we plan to expand our international sales activities, but may not be able to maintain or increase international market demand for our products. our international sales are subject to a number of risks, including: increased complexity and costs of managing international sales; protectionist laws and business practices that favor local competition in some countries; multiple, conflicting and changing laws, regulations and tax schemes; longer sales cycles; public health issues, such as the recent sars outbreak; greater difficulty in accounts receivable collection and longer collection periods; and political and economic instability. to date, all of our sales to international customers and purchases of components from international suppliers have been denominated in u.s. dollars. as a result, an increase in the value of the u.s. dollar relative to foreign currencies could make our products more expensive for our international customers, thus potentially leading to a reduction in sales and profitability. furthermore, many of our competitors are foreign companies that could benefit from such a currency fluctuation making it more difficult for us to compete with those companies. we may be unable to effectively protect our intellectual property, which would negatively affect our ability to compete. we believe that the protection of our intellectual property rights will continue to be important to the success of our business. we rely on a combination of patent, copyright, trademark and trade secret laws and restrictions on disclosure to protect our intellectual property rights. we also enter into confidentiality or license agreements with our employees, consultants and business partners, and control access to and distribution of our documentation and other proprietary information. despite these efforts, unauthorized parties may attempt to copy or otherwise obtain and use our proprietary technology. monitoring unauthorized use of our technology is difficult, and we cannot be certain that the steps we have taken will prevent unauthorized use of our technology, particularly in foreign countries where the laws may not protect our proprietary rights as fully as do the laws of the u.s. many u.s. companies have encountered substantial infringement problems in foreign countries, including countries in which we sell products. we do not currently hold any non-u.s. patents. we cannot be certain that patents will be issued as a result of our pending applications nor can we be certain that any issued patents would protect or benefit us or give us adequate protection from competing products. for example, issued patents may be circumvented or challenged and declared invalid or unenforceable. we also cannot be certain that others will not develop our unpatented proprietary technology or effective competing technologies on their own.significant litigation over intellectual property in our industry may cause us to become involved in costly and lengthy litigation, which could subject us to liability, require us to stop selling our products or force us to redesign our products. in recent years, there has been significant litigation in the u.s. involving patents and other intellectual property rights in the semiconductor industry. in the past, we have found it necessary to engage in litigation to enforce and defend our intellectual property rights, to protect our trade secrets or to determine the validity and scope of proprietary rights of others. for example, in 2000 we settled a patent infringement and trade secret claim filed by cirrus logic related to our audio co | 1 | < 0.1% | |
| risk factors an investment in our common stock involves a high degree of risk. you should consider carefully the risks described below, as well as all of the other information contained in this prospectus, before making any investment decision with respect to our common stock. please note that it is not possible to predict or identify all factors that could cause our actual results to differ. consequently, you should not consider any list of factors to be a complete set of all potential risks or uncertainties. the risks and uncertainties described below are not the only ones we face. if any of the following risks actually occurs, our business, financial condition or results of operations would likely suffer, the trading price of our common stock could decline, and you could lose all or part of your investment in our common stock. risks related to our business and industrywe depend on our powerflow suite of simulation solutions for substantially all of our revenue, and our business will suffer if demand for, or usage of, powerflow declines. we derive substantially all of our revenue from subscription licenses to use our powerflow software suite and related services. we expect revenue from powerflow to continue to account for substantially all of our revenue for the foreseeable future. if demand for, or usage of, powerflow declines for any reason, our revenue would decline and our operating results would suffer.we are dependent on a small number of significant customers for a substantial portion of our revenues. a significant portion of our revenues is derived from renewals by our existing customers of annual licenses to use powerflow, and in any fiscal period, a large portion of our revenue is typically attributable to a small number of significant customers. in fiscal years 2010, 2011 and 2012 and in the three months ended april 30, 2012, approximately 13%, 13%, 13%, and 15% of our revenue, respectively, was attributable to renault and approximately 10%, 11%, 9% and 9% of our revenue, respectively, was attributable to toyota. our relationship with each of these customers is an arms length commercial relationship. our contract with renault expires in december 2013. we do not have a long-term contract with toyota. in each of those years and in the three months ended april 30, 2012, approximately 61%, 69%, 64% and 69% of our revenue, respectively, was attributable to our ten largest customers in the aggregate, including renault and toyota. due to the concentration of revenue in a small number of customers, a significant reduction in usage of powerflow by any of these customers, or the non-renewal of their annual licenses, due to the cancellation or postponement of vehicle development programs or for any other reason, could have a materially adverse affect on our results of operations.our success depends on continued adoption of digital simulation in our target markets, and if potential customers are unwilling to adopt our digital simulation technologies to augment or replace their traditional physical methods of design validation and testing, our opportunities for future revenue growth may be limited. most of our customers and potential customers have historically tested their product designs using experimental methods such as wind tunnels and road tests. manufacturers often have made substantial investments in physical test facilities and associated staff and infrastructure and have accumulated many years of experience in using these methods. for organizational, cultural, financial or other reasons, potential customers may be reluctant to reduce their reliance on physical experimental methods as the primary means to validate and test their designs. if we are not successful in overcoming these obstacles by demonstrating to potential customers that the results of digital simulation using powerflow can be delivered in a timely and cost effective manner and are sufficiently reliable to be used as the basis of design decisions, they may not adopt, or may delay broader adoption of, our digital simulation technology, which could limit our opportunities for revenue growth and adversely affect our business.economic downturns that affect the ground transportation industry may adversely affect our revenues and operating results. we derive a substantial majority of our total revenue from companies in the ground transportation industry. accordingly, our future success depends upon the continued demand for digital simulation software and services by companies in this industry. the ground transportation industry and the other manufacturing industries that we serve, or may expand into, periodically experience economic downturns that can adversely affect our business. for example, our license revenue declined in fiscal year 2010, due to the suspension or postponement of vehicle 10 development programs by our customers in response to the 2008 financial crisis and resulting recession, which significantly affected the automotive industry. furthermore, terrorist attacks, other increased global hostilities and natural disasters have, at times, contributed to widespread uncertainty and speculation in the world financial markets. the impact of events of this kind may be exacerbated by other economic factors, such as increased operating and manufacturing costs due to rising global energy prices or the tightening of the financial and credit markets, and by changes in commercial and consumer preferences and spending habits. in the future, such cyclical trends and economic factors may adversely affect our business by reducing customer capital expenditures, extending design cycles and reducing our revenue and, ultimately, our results of operations. in addition, manufacturers in the ground transportation market tend to adhere to a technology choice for long periods, possibly an entire product development cycle. as a result, a lost opportunity with a given customer may not again become a new opportunity for several years or projects may be delayed if development of a new product is put on hold or terminated. adverse changes in the economy and global economic and political uncertainty may also cause delays and reductions in information technology spending by our customers and a deterioration of the markets for our products and services. if adverse economic conditions occur, we would likely experience reductions, delays and postponements of customer purchases that will negatively impact our revenue and operating results. in the past, worldwide economic downturns and pricing pressures have led to reorganizations of companies in the automotive industry. such reorganizations have in the past caused delays and reductions in capital and operating expenditures including for products and services like ours. in addition, a consolidation or reorganization affecting a significant customer could result in discontinuation of use by the acquired company of our simulation solutions, if the acquiring company has not adopted our technology or prefers other methods of design verification. domestic and foreign economic conditions or any other factors that result in reduced spending on new product development by companies in the automotive industry could harm our operating results in the future.our lengthy and complicated sales cycle makes it difficult for us to predict the timing of our entry into new license agreements. the development of our business relationship with a potential customer can be a lengthy process, typically spanning three to six months or longer. our strategy is to engage initially with new customers, or with new engineering groups within existing customers, by performing fixed-price projects. once new customers are familiar with the capabilities of our products, they generally, but not always, transition to a license-based model for access to powerflow. because the license fees for our products can be substantial and the internal process changes necessary for a customer to implement our solution can be significant, the software license sales cycle may involve multiple divisions within a potential customers organization and multiple layers of management. due to the length and complicated nature of our sales cycle, predicting the fiscal period in which a new license agreement will be entered into, if at all, is difficult. delay in booking a new license agreement could cause our quarterly revenues to fall substantially below our expectations and those of public market analysts and investors. delays in sales could cause significant shortfalls in our revenue and operating results for any particular period.competition from software offered by current competitors and new market entrants, as well from internally developed solutions by our customers, could adversely affect our ability to sell our software products and related services and could result in pressure to price our products in a manner that reduces our profitability. the market for digital simulation software is characterized by vigorous competition. we consider the primary competition to adoption of our solutions to be our customers continued use of physical prototypes and test facilities. we also encounter competition from companies that provide multi-function digital simulation software that is used for various purposes in the ground transportation industry and elsewhere, primarily cd-adapco, with its products star-cd and star-ccm+, and ansys, with its products fluent and cfx. cd-adapco has a strong presence in the automotive market, and offers capabilities in certain areas where we do not currently focus, such as combustion. ansys offers a suite of digital simulation software that includes many applications that we do not address, such as structural mechanics and electromagnetism, which it markets to a broad spectrum of industries. we also compete against open source software such as openfoam that includes computational fluid dynamics capabilities. in most of our existing and potential new accounts, products such as these are already in use for a variety of purposes, and likely will remain so. our ability to further penetrate the ground transportation market will therefore depend on our ability to demonstrate that our solutions deliver economic value in the form of significant process and 11 cost improvements that competing products are unable to provide. as we expand our offerings into other markets, we may face competition from the same competitors as well as from companies that we have not typically competed against in the past. many of our current and potential competitors have greater financial, technical, marketing, service and other resources than we have and may expand into our markets by acquiring other companies or otherwise. as a result, these companies may be able to offer lower prices, additional products or services, or other incentives that we cannot match or offer. existing and potential customers may perceive the cost of our solution as being higher than that of our competitors products. this perception could become an obstacle to wider adoption of our simulation solutions, or result in pressure to reduce our prices or change our capacity-based pricing model. we may not be able to compete successfully against current or future competitors and competitive pressures may materially adversely affect our business, financial condition and operating results.the significant cost of deep deployment of our solutions could deter their wider adoption. under our capacity-based license model, license fees are based on simulation capacity, purchased on an annual basis. increased utilization, or continued usage after the expiration of the license term, requires the purchase of additional simulation capacity. as customers increase their reliance on our digital simulation solutions and deploy them more widely within their organizations, their consumption of our simulation capacity increases. for example, one customer has expanded the annual simulation capacity it purchases from us by a factor of over 50 times over a period of six years. at some point, the significant cost of implementing our solutions pervasively throughout their organizations under a capacity-based licensing model may deter our customers from more widely adopting our solutions, which could limit our prospects for growth.our success depends in part on our ability to develop and introduce new and enhanced products and we may not be able to timely develop new and enhanced products to satisfy changes in demand. our success depends in part on our ability to develop and market new and enhanced solutions on a timely basis. successful product development and marketing depends on numerous factors, including our ability to anticipate customer requirements, changes in technology, our ability to differentiate our products and solutions from those of our competitors, and market acceptance. enterprises are requiring their application software vendors to provide greater levels of functionality and broader product offerings. moreover, our industry is characterized by rapidly changing technologies and evolving industry standards and operating platforms. we may not be able to develop and market new or enhanced solutions in a timely or cost-effective manner or to develop and introduce products that satisfy customer requirements. our products also may not achieve market acceptance or correctly anticipate technological changes. in particular, a critical component of our growth strategy is to increase the penetration and expansion of powerflow and our related products with our existing customers in the ground transportation market. we may not be successful in developing and marketing, on a timely basis, new products or product enhancements, or adequately addressing the changing needs of our customers and potential customers or successfully increasing the penetration of powerflow and our related products in our existing, or any other, markets.our success in penetrating new vertical markets will depend, in part, on our ability to develop a deep understanding of the challenges facing potential customers in those markets. we have historically concentrated our development efforts primarily on the ground transportation market. while we anticipate that the substantial majority of our revenues will continue to be derived from the ground transportation market for the foreseeable future, in order to achieve our long-term growth goals, we will need to penetrate additional vertical markets, such as the aerospace, oil and gas production, chemical processing, architecture and construction, power generation, biomedical and electronics industries. our success in the ground transportation market depends on our deep understanding of the design processes utilized by our customers in that market. in order to penetrate new vertical markets, we will need to develop a similar understanding of the design processes, and associated technical difficulties, utilized by participants in those markets. developing this level of understanding will be a time consuming and potentially expensive process, and we may not be successful. we will also need to demonstrate to potential customers that powerflow and our other products and services can provide digital simulation solutions that compare favorably to physical testing methods as well as the offerings by our competitors with respect to cost, accuracy, set-up time and ease of use. if we fail to penetrate these new vertical markets, our revenue may grow at a slower rate than we anticipate and our financial condition could suffer. we may not be able to obtain or maintain necessary licenses of third-party technology on commercially reasonable terms, or at all, which could delay product sales and development and adversely impact product quality. we have incorporated third-party licensed technology into certain of our products. we anticipate that we are also likely to need to license additional technology from third parties in connection with the development of new products or product enhancements in the future. third-party licenses may not be available to us on commercially reasonable terms, or at all. the inability to retain any third-party licenses required in our current products or to obtain any new third-party licenses to develop new products and product enhancements could require us to obtain substitute technology of lower quality or performance standards or at greater cost, and delay or prevent us from making these products or enhancements, any of which could seriously harm the competitive position of our products.defects or errors in our products could harm our reputation, impair our ability to sell our products and result in significant costs to us. powerflow and the other products that we offer are complex and, despite extensive testing and quality control, may contain undetected errors or failures when first introduced or as new versions are released. we have not suffered significant harm from any defects or errors to date, but we have from time to time found defects in our products and we may discover additional defects in the future. we may not find errors in new or enhanced products before the products are released and such errors may not be discovered by us or our customers until after the products have been implemented. we have in the past issued and may in the future need to issue corrective releases of our products to remedy defects and errors. any of these problems may result in the loss of or delay in customer acceptance and sales of our products, which could have a material, adverse effect on our business, financial position, results of operations and cash flows.we could be subject to significant expenses and damages because of liability claims related to our products and services. our customers reliance on our digital simulation solutions or project-based services in their vehicle design processes may entail the risk of product liability claims and associated damages, and our software products and services could give rise to warranty and other claims. as we expand into new market segments outside the ground transportation industry, the risk of product liability exposure may increase. any errors, defects, performance problems or other failure of our software could result in significant liability to us for damages or for violations of environmental, safety and other laws and regulations. our agreements with our customers generally contain provisions designed to limit our exposure to potential product liability claims. it is possible, however, that the limitation of liability provisions in our agreements may not be effective as a result of federal, foreign, state or local laws or ordinances or unfavorable judicial decisions. a substantial product liability judgment against us could materially and adversely harm our operating results and financial condition. even if our software is not at fault, a product liability claim brought against us could be time consuming, costly to defend and harmful to our operations. in addition, although we carry general liability insurance, our current insurance coverage may be insufficient to protect us from all liability that may be imposed under these types of claims.if there are interruptions or delays in our powerflow ondemand services due to third-party error, our own error or the occurrence of unforeseeable events, delivery of our solutions and the use of our service could become impaired, which could harm our relationships with customers and subject us to liability. we provide powerflow ondemand services primarily through a data center operated by ibm in piscataway, new jersey under an agreement with ibm. ibm provides the system infrastructure and owns or leases the computer hardware used for the powerflow ondemand services that it hosts. design and mechanical errors, spikes in usage volume and failure to follow system protocols and procedures could cause our systems, or those in the ibm data center, to fail, resulting in interruptions in our service. interruptions or delays in our powerflow ondemand service could result from the termination of our arrangement with ibm, third-party error, our own error, natural disasters or security breaches. such interruptions or delays, whether accidental or willful, could harm our relationships with customers, damage our brand and reputation, divert our employees attention, reduce our revenue, subject us to liability, cause us to issue credits or cause customers to fail to renew their subscriptions, any of which could adversely affect our business, financial condition and results of operations. if our security measures, or those of third-party providers for our powerflow ondemand service, are breached and unauthorized access is obtained to client data, clients may curtail or stop their use of our solutions, which could harm our business, financial condition and results of operations. our powerflow ondemand service involves the storage and transmission of confidential information of customers, including their design data. we may also in the course of our service engagements have access to such confidential customer information. if our, or our third-party service providers, security measures were ever breached as a result of employee error, malfeasance or otherwise, and, as a result, an unauthorized party obtained access to this confidential data, our reputation could be damaged, our business could suffer and we could incur significant liability. techniques used to obtain unauthorized access or to sabotage systems change frequently and generally are not discovered until launched against a target. as a result, we and our third-party providers may be unable to anticipate these techniques or to implement adequate preventative measures. if an actual or perceived breach of our or our third-party suppliers security occurs, the market perception of our ondemand services could be harmed and we could lose sales and clients.seasonal variations in the purchasing patterns of our customers may lead to fluctuations in the timing of our cash flows. we have experienced and expect to continue to experience seasonal variations in the timing of customers purchases of our software products. many customers make purchase decisions based on their fiscal year budgets, which often coincide with the calendar year, except for our customers in japan. these seasonal trends materially affect the timing of our cash flows, as license fees become due at the time the license term commences. as a result, new and renewal licenses have been concentrated in the fourth quarter of our fiscal year, and our cash flows from operations have been highest in the first quarter of the succeeding fiscal year.declines in new software license sales or in the rate of renewal of our software may not be fully reflected in our current period operating results and could lead to future revenue shortfalls that could affect our results of operations. because our software products are sold pursuant to annual subscription agreements and we recognize revenue from these subscriptions over the term of the agreement, downturns or upturns in new or renewal licenses may not be fully reflected in our current period operating results. we do not intend to report or disclose our bookings or invoices on a current basis. if our new and renewal license purchases in any period decline or fail to grow at a rate consistent with our historical trends, particularly in the fourth quarter of our fiscal year, when a disproportionate percentage of our new license and renewal sales typically occur, our revenue in future periods could fall short of analysts expectations which, in turn, could adversely affect the price of our common stock.our cost structure is relatively fixed in the short term, which makes it difficult to reduce our expenses quickly in response to declines in revenue or revenue growth. most of our expenses, such as those associated with headcount and facilities, are relatively fixed and can be difficult to reduce in the short term. our expense levels are based in part on our expectations regarding future revenue levels. as a result, if revenue for a particular quarter is below our expectations, our expenses for that quarter may constitute a larger percentage of our operating budget than we planned, causing a disproportionate effect on our expected results of operations and profitability for that quarter.if we are unable to manage our expected growth, our performance may suffer. our business has grown rapidly, and if we are successful in executing our business strategy, this growth will continue as we expand our offerings in the ground transportation market and seek to penetrate new vertical markets. we will need to continue to expand our managerial, operational, financial and other systems and resources to manage our operations, continue our research and development activities, increase our sales force and expand project-based services by increasing our field application engineers and worldwide support staff. it is possible that our management, finance, development personnel, systems and facilities currently in place may not be adequate to support this future growth. our need to effectively manage our operations, growth and products requires that we continue to develop more robust business processes and improve our systems and procedures in each of these areas and to attract and retain sufficient numbers of talented employees. we may be unable to successfully implement these tasks on a larger scale and, accordingly, may not achieve our research, development and growth goals. our business could be adversely affected if we are unable to attract, integrate and retain key personnel. our success in the highly competitive digital simulation market depends largely on our ability to attract, integrate and retain highly skilled technical, managerial, consulting, sales and marketing personnel. competition for these personnel in our industry is intense. we may not be able to continue to attract and retain the appropriately qualified, highly skilled employees necessary for the development of our products and services and the growth of our business, or to replace such personnel who leave our employ in the future. the loss of services of any of our key personnel, the inability to retain and attract qualified personnel in the future, or delays in hiring required personnel, particularly scientific, product development and applications management personnel, could make it difficult to meet key objectives, such as timely and effective product introductions, penetration and expansion into existing accounts and growth in our share of the domestic and international digital simulation market.we may expand by acquiring or investing in other companies, which may divert our managements attention, result in additional dilution to our stockholders and consume resources that are necessary to sustain our business. although we have no agreements or commitments for any material acquisitions, our business strategy may in the future include acquiring complementary services, technologies or businesses. we also may enter into relationships with other businesses to expand our service offerings or our ability to provide service in foreign jurisdictions, which could involve preferred or exclusive licenses, developing channels of distribution or investments in other companies. negotiating these transactions can be time-consuming, difficult and expensive, and our ability to close these transactions may often be subject to approvals that are beyond our control. consequently, these transactions, even if undertaken and announced, may not close. an acquisition, investment or business relationship may result in unforeseen operating difficulties and expenditures. in particular, we may encounter difficulties assimilating or integrating the businesses, technologies, products, personnel or operations of the acquired companies, particularly if the key personnel of the acquired company choose not to work for us, the companys technology is not easily adapted to work with ours or we have difficulty retaining the customers of any acquired business due to changes in management or otherwise. acquisitions may also disrupt our business, divert our resources and require significant management attention that would otherwise be available for development of our business. moreover, the anticipated benefits of any acquisition, investment or business relationship may not be realized or we may be exposed to unknown liabilities. our acquisitions may not be successfully integrated or any such acquisitions may not otherwise be successful. if our acquisitions are unsuccessful for any reason, our business may be harmed and the value of your investment may decline.we sell our products and services internationally and are subject to various risks relating to these international activities; if we fail to manage our international operations effectively, our business, financial condition and results of operations could be adversely affected. international sales of powerflow and our related products and services are important to our growth and profitability. in the fiscal year ended january31, 2012, 77% of our revenue was attributable to sales in international markets, and at april 30, 2012, we had 14offices in 8 countries. by doing business in international markets, we are exposed to risks separate and distinct from those we face in our domestic operations, and if we are unable to manage the various risks associated with supporting our international sales and service efforts effectively, the growth and profitability of our business may be adversely affected. engaging in international business inherently involves a number of other difficulties and risks, including: changes in foreign currency exchange rates; changes in a specific countrys or regions political or economic conditions, particularly in emerging markets; burdens of complying with a wide variety of foreign customs, laws and regulations; burdens of complying with united states laws regulating international business activities, including the united states foreign corrupt practices act and economic and trade sanctions regimes; natural disasters or outbreaks of infectious diseases affecting the regions in which our customers operate; unexpected changes in tariffs or trade protection measures; import or export licensing requirements and other restrictions on technology imports and exports; potentially negative consequences from changes in foreign government regulations, tax laws and regulatory requirements; 15 laws and business practices favoring local companies; difficulty in managing a geographically dispersed workforce in compliance with diverse local laws and customs; difficulties and costs of staffing and managing foreign operations; disproportionate management attention or company resources; changes in diplomatic and trade relationships; international terrorism and anti-american sentiment; possible future limitations on the ownership of foreign businesses; difficulties in enforcing agreements and collecting receivables through certain foreign legal systems; longer accounts receivable payment cycles; less effective protection of intellectual property; and the challenges of handling legal disputes in foreign jurisdictions. because most of our international sales are denominated in the currency of the country where the purchaser is located, as we continue to expand our direct sales presence in international regions, the portion of our accounts receivable and payment obligations denominated in foreign currencies continues to increase. as a result, increases or decreases in the value of the u.s. dollar relative to foreign currencies may affect our financial position, results of operations and cash flow. currently, our largest exposures to foreign exchange rates exist with respect to the euro and the japanese yen. we do not currently hedge our exposure to fluctuations in foreign exchange rates. any hedging policies we may implement in the future may not be successful, and the cost of those hedging techniques may have a significant negative impact on our operating results. our exposure to each of these risks may increase our costs, impair our ability to market and sell our products and require significant management attention. our business, financial position, results of operations and cash flows may be materially adversely affected by any of these risks.our effective tax rate may fluctuate, and we may incur obligations in tax jurisdictions in excess of amounts that have been accrued. we are subject to income taxes in both the united states and var | 1 | < 0.1% | |
| risk factors an investment in our common stock involves risks. you should carefully consider the following risk factors, in addition to the other information contained in this prospectus, before deciding to purchase any shares of our common stock. risks related to our business we are subject to general economic factors that are largely out of our control, any of which could have a material adverse effect on our business, results of operations and financial condition. our business is subject to a number of general economic factors, many of which are largely out of our control, that may have a material adverse effect on our business, results of operations and financial condition. these include recessionary economic cycles and downturns in our customers business cycles, particularly customers in the retail industry, which accounted for approximately 35% of our operating revenue in 2002, as well as downturns in the principal regional economies where our operations are located. economic conditions may adversely affect our customers business levels and the amount of transportation services that they need. furthermore, customers encountering adverse economic conditions may have difficulty in paying for our services. finally, terrorist activities, anti-terrorist efforts, war or other armed conflicts involving the united states or its interests abroad may have a material adverse effect on the u.s. and global economies and on our business, results of operations or financial condition.we operate in a highly competitive industry. numerous competitive factors could impair our ability to maintain our current level of profitability and adversely affect our financial condition. these factors include the following: we compete with many other transportation service providers of varying sizes, some of which have more equipment, a broader coverage network, a wider range of services, greater capital resources or more advanced technology than we do or have other competitive advantages; some of our competitors periodically reduce their prices to gain business, especially during times of reduced growth rates in the economy, which may limit our ability to maintain or increase prices or maintain significant growth in our business; competition may impair our ability to implement tiered pricing, where our prices vary based upon the length of haul or service offered; many customers reduce the number of carriers they use by selecting so-called core carriers as their approved transportation service providers, and in some cases we may not be selected as a core carrier by our customers; many customers periodically accept bids from multiple carriers for their shipping needs, and this process may depress prices or result in the loss of some business to competitors; the current trend of consolidation in the ground transportation industry could create large carriers with greater financial resources than we have and other competitive advantages relating to their size; advances in technology require increased investments to maintain competitiveness, and we may not have the financial resources to invest in technology improvements or our customers may not be willing to accept higher prices to cover the cost of these investments; and competition from non-asset-based logistics, freight brokerage and other similar companies may adversely affect our customer relationships, pricing power and volumes. our pension plans are underfunded, which will require us to make significant contributions to the plans and reduce the cash available for our business. we have several contributory and non-contributory pension plans covering substantially all of our employees. we are required to make cash contributions to our pension plans to the extent necessary to comply with minimum funding requirements imposed by employee benefit and tax laws. the amount of any such required contributions will be determined annually based on an annual actuarial valuation of the plans as performed by the plans actuaries. in addition, the job creation and worker assistance act of 2002, or jcwaa, includes temporary funding relief rules allowing companies in 2002 and 2003 to use discount rates for determining required cash contributions equal to 120% of the weighted average 30-year u.s. treasury bond yield. during 2002, we contributed $126.5 million in cash to our defined benefit pension plans, of which $125.0 million was voluntary. with this contribution, our defined benefit pension plans were approximately 94% funded on an irs funding basis as of december 31, 2002. through september 30, 2003, we contributed $45.7 million to our defined benefit pension plans, of which $45.0 million was voluntary. subsequent to 2003, we expect to continue funding approximately $45 million per year to help manage any potential required funding in the future. however, the actual amount of contributions subsequent to 2003 will depend upon asset returns, then-current discount rates and a number of other factors, and the amount we may elect or be required to contribute to our pension plans in the future may increase significantly. specifically, if the funding relief measures under the jcwaa are not extended to years subsequent to 2003, we may be required to make significantly higher cash contributions in future periods, which would reduce the cash available for our business.adverse interest rate or equity market conditions may increase our pension liability, which could result in reductions to shareholders equity. our pension plan assets are principally invested in equity securities, fixed-income securities and short-term securities. recent declines in equity markets and interest rates have had a negative impact on the funded status of our pension plans. as of december 31, 2002, the projected benefit obligation under our pension plans exceeded the plans fair value of assets by $208.2 million, based on a discount rate of 6.75%. if long-term interest rates remain at or decline from current levels, we would be required to value our pension liabilities using a discount rate which would be lower than the 6.75% discount rate used as of december 31, 2002 and, as a result, we would be required to record an additional minimum pension liability adjustment. specifically, if liabilities were required to have been measured as of october 29, 2003, the applicable discount rate would have been 6.50%, or 0.25% lower than the discount rate used as of december 31, 2002. in addition, if the actual value of our plan assets were to deteriorate from their current levels, we may be required to make a liability adjustment. in the event of a liability adjustment from either a decline in discount rates or a deterioration of plan assets, the liability adjustment would be recorded as a reduction to shareholders equity, after tax. the equity would be restored to the balance sheet in future periods only if the fair value of plan assets exceeded the accumulated benefit obligation. we estimate that each 0.25% decrease in discount rate or 1% decrease in actual asset return would have had a negative impact on our funded status as of december 31, 2002 of $34.4 million and $5.7 million, respectively. further, while actual changes in shareholders equity depend upon a number of variables and other assumptions, we estimate that each 0.25% decrease in discount rate or 1% decrease in actual asset return would result in a reduction to shareholders equity, net of tax, of $17.9 million and $4.0 million, respectively, as of december 31, 2003.declines in equity markets or interest rates may result in increased pension expense. the declines in equity markets and interest rates in recent years have also resulted in increased pension expense during prior periods. we decreased our assumed rate of return on pension plan assets during 2002 from 10% to 9%. this assumption change resulted in an increase in 2002 pension expense of $5.3 million. during 2002, actual asset returns for our pension plans were adversely affected by deterioration in the equity markets, and the actual return on plan assets in 2002 was negative 10.7%. our 2003 assumed rate of return on plan assets is 8% and the actual return on plan assets through september 30, 2003 was approximately 14%. our pension expense in 2002 was $26.1 million, while 2003 pension expense is expected to be $30.2 million. while pension 15 expense in future periods will depend upon a number of variables and assumptions, we estimate that each 0.25% decrease in discount rate or 1% decrease in our assumed asset return would result in an increase in expected 2004 pension expense of $4.6 million and $7.2 million, respectively. further, since asset related gains and losses are recognized over a five year period, prior period reductions in the value of plan assets may continue to have an impact on pension expense in future periods. see managements discussion and analysis of financial condition and results of operationspension plans and note 8 to our audited consolidated financial statements included elsewhere in this prospectus for additional information regarding our pension plans.an increase in the cost of healthcare benefits could have a negative impact on our profitability. we sponsor health insurance for employees, retirees and their dependents through health maintenance organizations, or hmos, and preferred provider organizations, or ppos, and offer a competitive healthcare program to attract and retain our employees. these benefits comprise a significant portion of our operating expenses. it is possible that healthcare costs could become increasingly cost prohibitive, either forcing us to make changes to our benefits program or negatively impacting our future profitability.insurance and claims expenses could significantly increase our costs. companies in the industry in which we operate are exposed to claims related to cargo loss and damage, property damage, personal injury and workers compensation. we currently self-insure for a portion of our claims exposure resulting from these risks, ranging from $250,000 for general liability to $5.0 million per claim for automobile liability. if the number or severity of claims for which we are self-insured increases, our operating results could be adversely affected. we also maintain insurance with third party insurance carriers above the amounts for which we self-insure. however, insurance carriers have recently begun to raise premiums for many transportation companies. if our insurance carriers were to increase our premiums, we would be required to either absorb the increase in premium costs and/or raise our self-insured retention, which could significantly increase our insurance and claims expense. in addition, both our insurance carriers and the states in which we operate require us to post either letters of credit or surety bonds to collateralize our self-insured retention. if our insurance carriers or the states in which we operate require us to increase the amount of collateral we provide in the future, we could face increased costs, including the payment of additional fees to the providers of letters of credit and surety bonds. further, the market for surety bonds has recently begun to deteriorate, and carriers are facing difficulties in obtaining surety bonds, which we primarily use to collateralize our state workers compensation self-insurance. if we were to face difficulties in obtaining surety bonds, we would be required to provide letters of credit, which will increase the costs we incur to collateralize our self-insured retention. in addition, since our letters of credit will generally be considered as debt under the financial covenants for our financing arrangements, increases in the amount of letters of credit we have outstanding to collateralize our self-insurance obligations will reduce our capacity for additional borrowings.we will face increased expenses as a stand-alone company. since 1986, we have been a wholly owned subsidiary of union pacific. although we have operated as a separate business, distinct from union pacifics other activities, we have relied on union pacific for certain support functions, as well as financial support. we currently estimate that we will incur approximately $9.1million per year of incremental operating expenses as a result of being a stand-alone public company. these stand-alone costs are estimates, and actual incremental expenses could be materially different from these estimates. in addition, we will no longer receive interest income from union pacific, which accounted for $19.1million of interest income in 2002, and we will be required to incur interest expense in respect of our initial borrowings under our new bank credit facility. furthermore, we have historically funded our working capital and capital expenditures from cash flow from operations. following this offering, in the event our cash flow is not 16 sufficient to fund our operations and capital expenditures, we may be required to incur third-party indebtedness, including indebtedness under our new bank credit facility, as we will no longer be able to rely on union pacific for funding or credit support in such an event. accordingly, we may incur additional indebtedness, interest expense and financing fees in the future. as a result of these factors, investors should not rely on our historical income and cash flows as necessarily indicative of the income and cash flows that we might have had if we had been operating as an independent company during those periods. see managements discussion and analysis of financial condition and results of operationseffects of separation from union pacific and this offering and liquidity and capital resources and the unaudited pro forma consolidated financial statements included elsewhere in this prospectus. in addition, following this offering and our separation from union pacific, we will be required to relocate our st. louis data center, which contains a significant portion of our core business applications and is operated and managed by union pacific, to our richmond data center. the costs of this transition, which will include costs associated with upgrading our systems in richmond, purchasing system software and obtaining third party software licenses, are expected to represent approximately $6 million. we anticipate incurring most of these costs in 2004.we will face additional insurance expenses as a stand-alone company. as described above, we will face increased operating expenses as a stand-alone entity. a significant portion of this increase will result from the incurrence of additional insurance and workers compensation expenses. union pacific currently administers an insurance program for workers compensation and public liability claims for its corporate entities, including us. under the program, union pacific has provided indemnities, insurance guarantees, letters of credit and surety bonds to states and insurance companies for the performance of our obligations under these claims. following this offering, we will no longer be affiliated with union pacific, and union pacific will no longer provide such indemnities, guarantees, letters of credit or surety bonds for our benefit under this program. as a stand-alone company, we will be required to obtain new insurance policies and reapply as a self-insurer in several of the states in which we operate. as a result, insurance carriers and those states will reevaluate our creditworthiness on a stand-alone basis, and the amount of collateral that we must post to secure our self-insurance exposure will likely increase. accordingly, we will face increased expenditures to provide our own indemnities, guarantees, letters of credit and surety bonds. in addition, we will be required to obtain insurance for our directors and officers. of the $9.1 million of increased operating expenses we estimate we will incur as a stand-alone entity, we estimate that expenses for insurance and workers compensation will account for approximately $4.2 million each year. further, if any state were to reject our application to act as a workers compensation self-insurer and we were unable to obtain workers compensation insurance from an insurance company, we would be prohibited from operating in that state and our operations would be materially adversely affected.if our relationship with our employees were to deteriorate, we could be adversely affected. while the teamsters union no longer represents any of our 12,600 employees at overnite transportation, employees at two of our motor cargo service centers located in north salt lake, utah and reno, nevada, representing approximately 11% of our total motor cargo work force at 37 service centers, are covered by two separate collective bargaining agreements with unions affiliated with the teamsters. on september 15, 2003, employees at motor cargos reno service center filed a petition to decertify the teamsters as their collective bargaining representative. at the decertification election held on october 23 and 24, 2003, employees at motor cargos reno service center voted to retain the teamsters as their collective bargaining representative. on october 24, 2002, the teamsters ended a three-year nationwide strike of overnite transportation, our principal business unit. while the teamsters ended their strike without obtaining a contract or any concessions from us, the strike did cause us to incur significant expenditures for the protection of our employees and property, and diverted the time and attention of our management from our normal operations. although we focus on maintaining a productive relationship with our employees, we cannot ensure that in the future the teamsters will 17 not again attempt to organize overnite transportation employees or that we will not be subject to work stoppages, strikes or other types of conflicts with our employees or organized labor. any such event could have a material adverse effect on our ability to operate our business and serve our customers and could materially impair our relationships with key customers and suppliers. accordingly, any future labor conflict could have a material adverse effect on our business, results of operations and financial condition. at the height of the teamsters campaign to unionize overnite transportation employees, the teamsters had petitioned to gain representation rights at over 60 of overnite transportations 170 service centers, and they ultimately gained certified representation rights at 26 of these service centers. since july 2002, the teamsters have been decertified and no longer represent overnite transportation employees as the collective bargaining representative at any of these service centers. as a result of the decertifications and the successful resolution of the teamsters strike, the teamsters campaign to organize the employees of overnite transportation has ended at this time. however, if the teamsters renew their organization efforts, we would likely face significant costs, which would divert resources that we would otherwise use to focus on executing our business strategy. in addition, if the teamsters were successful in organizing our employees in the future, our flexibility in dealing with our workforce could be significantly hampered, and we could be subject to the potential of increases in labor, benefits and other similar costs. any of these factors could have an adverse effect on our business, results of operations and financial condition.we have significant ongoing capital requirements. our business requires substantial ongoing capital investment, particularly for tractors, trailers, service centers and technology. our capital expenditures in 2002 were $64.6 million, excluding an additional $1.0 million for operating lease commitments, and we expect to make capital expenditures of approximately $58.0 million in 2003, excluding approximately $2.0 million for operating lease commitments. we expect that operating leases, the revolving credit facility under our new bank credit facility, secured equipment financing and cash flow from operations will be our primary sources of financing for capital expenditures. if we are unable to enter into leases, raise sufficient capital, borrow sufficient funds on terms that are acceptable to us or generate sufficient cash from operations to finance our capital expenditures, we may be forced to limit our growth and operate existing equipment for significant periods of time, each of which could have a material adverse effect on our business, results of operations and financial condition.we may be adversely impacted by fluctuations in the price and availability of fuel. in 2002, fuel (excluding fuel taxes) represented approximately 4% of our total operating costs. the market price for fuel can be extremely volatile and can be affected by a number of economic and political factors. in particular, reduced oil production as a result of the war in iraq, the continued deterioration of the political climate in the middle east and certain parts of africa and the instability of oil production in venezuela have contributed to significant increases in fuel prices. in addition, changes in federal or state regulations can impact the price of fuel, as well as increase the amount we pay in fuel taxes. when fuel costs exceed specific levels, we seek to charge a portion of the higher cost to our customers as a fuel surcharge. while we have historically been able to offset significant increases in fuel prices through fuel surcharges, we cannot be certain that we will be able to do so in the future. if fuel prices increase and we are unable to pass the increased cost to our customers, the additional expense could have a material adverse effect on our business, results of operations and financial condition. the fuel surcharges we negotiate with our customers only apply when our fuel costs exceed specified levels. further, these fuel surcharges are customarily limited by caps on the amounts required to be paid by our customers. accordingly, in order to protect against fluctuations in fuel prices that are not covered by fuel surcharges, we frequently enter into fuel hedging arrangements. in the event we are not hedged, we are at risk to the extent that changes in the market price of fuel are not covered by our negotiated fuel surcharge arrangements. alternatively, while the use of fuel hedging arrangements may provide us with protection from adverse 18 fluctuations in fuel prices, by utilizing these arrangements we potentially forgo the benefits that might result from favorable fluctuations in fuel prices or, in some cases, we may incur hedging losses. we have not hedged any of our remaining forecasted fuel consumption for 2003. our operations may also be adversely affected by any limit in the availability of fuel. continued disruptions in the political climate in key oil producing regions in the world, particularly in the event of wars or other armed conflicts, could severely limit the availability of fuel in north america. in the event we face significant difficulty in obtaining fuel, our business, results of operations and financial condition would be materially adversely affected.if we were to lose one or more of our key customers, our business may be adversely affected. our top 20 customers accounted for approximately 25% of our operating revenue in 2002. if we were to lose one or more of our key customers, we might not be able to capture additional volume from other customers to offset the fixed costs historically covered by the loss of revenue. further, the loss in volume from one or more significant customers could adversely affect our density in a particular region or lane, which would adversely affect our profitability until we could generate additional volumes or until we could adjust our costs to the lower level of volume. accordingly, the loss of one or more significant customers could have a material adverse effect on our results of operations and financial condition. specifically, the loss of a significant customer contributed to the $5.9 million decrease in our dedicated truckload operating revenue in 2001 as compared to 2000.if we lose key members of our senior management, our business may be adversely affected. during the early 1990s, we faced a number of operational difficulties, resulting in declines in service levels and profitability and a deterioration of our relationship with our employees. in 1995 and 1996, overnite transportation experienced net losses, the first in its 60-year history. our current management team was assembled in 1996 and was instrumental in the successful turnaround of our company, restoring us to profitability and resolving the issues raised by organized labor unions. accordingly, we believe that the success of our current business strategy significantly benefits from the continued employment of this senior management team. if one or more members of our senior management team become unable or unwilling to continue in their present positions, our business could be adversely affected.we may face increased prices for new equipment. investment in new equipment is a significant part of our annual capital expenditures. we may face difficulty in purchasing new equipment on a timely basis. any delay in receiving equipment from our anticipated sources could require us to seek equipment from alternative sources at increased prices. in addition, a number of tractor manufacturers have begun to raise the prices of new equipment, particularly in response to new government-imposed emissions standards on diesel engines that went into effect in october 2002. any delay in receiving equipment could impair our ability to serve our customers or could result in a significant increase in our anticipated capital expenditures and, accordingly, have a material adverse effect on our business, results of operations and financial condition.we rely on purchased transportation, making us vulnerable to increases in costs of these services. we use purchased transportation, primarily intermodal rail and contract linehaul from truckload carriers, to handle lane imbalances and to expand capacity to accommodate surges in business. we will move trailer loads in one direction using purchased intermodal rail service or contract carriage in situations when scheduling one of our drivers to move the load would result in the driver returning with empty trailers. we will also, on occasion, augment our linehaul capacity during certain peak periods through the use of purchased transportation. in addition, in our assembly and distribution service, we frequently contract with third party truckload carriers to transport customer shipments we have consolidated for long-haul shipping. a reduction in the availability of 19 purchased transportation may require us to incur increased costs to satisfy customer shipping orders. we may be unable to pass along increases in third party shipping prices to our customers. any of these factors could have an adverse effect on our profitability and our results of operations.we may face difficulties in attracting and retaining drivers. competition for qualified drivers can be intense within the transportation industry, and periodically the trucking industry has suffered from a shortage of drivers. we believe that this issue has primarily affected truckload carriers. recently, we have not experienced problems hiring a sufficient number of qualified drivers. however, there can be no assurance that we will not experience a shortage of drivers in the future, particularly in regions such as the northeast, which have very competitive labor markets. any shortage in drivers could result in temporary under-utilization of our equipment, difficulty in meeting our customers demands and increased compensation levels, each of which could have a material adverse effect on our business, results of operations and financial condition.we operate in a highly regulated industry and costs of compliance with, or liability for violations of, existing or future regulations can be significant. we are regulated by the federal motor carrier safety administration and the surface transportation board, independent agencies within the u.s. department of transportation, or dot, and by various federal and state agencies. these regulatory authorities have broad powers, generally covering matters such as the authority to engage in motor carrier operations, hours of service, safety, consolidations and acquisitions and periodic financial reporting. our industry is also subject to regulatory and legislative changes, such as increasingly stringent environmental and occupational safety and health regulations or limits on vehicle weight and size, security and ergonomics. compliance with current and future regulations could substantially impair equipment productivity, require changes in our operating practices, negatively affect the level of service we provide our customers and increase our costs. in addition, violations of regulations can subject us to fines and penalties, and significant or repeated violations could result in governmental action to curtail or suspend our operations. see businessregulation for a more complete discussion of the regulations that affect our business.we are subject to various environmental laws and regulations. we are subject to various federal, state and local environmental laws and regulations that address, among other things, the transportation, management and disposal of hazardous materials, discharge of stormwater, facility and vehicle emissions into the atmosphere and underground and aboveground fuel storage tanks. under specific environmental laws, we can be held responsible for any costs relating to contamination at our past or present facilities and at third party waste disposal sites, including cleanup costs, fines and penalties, and personal injury and property damages. under some of these laws, liability for the entire cost of the cleanup of contaminated sites can be imposed upon any current or former owner or operator, or upon any party who sent waste to the site, regardless of the lawfulness of the activities that led to the contamination. we cannot assure you that our costs of complying with current or future environmental laws or liabilities arising under such laws will not have a material adverse affect on our business, results of operations or financial condition. the u.s. environmental protection agency, or epa, has issued regulations that require progressive reductions in exhaust emissions from certain diesel engines through 2007. new emissions standards under the regulations and a judicial consent decree went into effect for certain engines beginning in october 2002. in addition, the regulations require subsequent reductions in the sulfur content of diesel fuel beginning in june 2006 and the introduction of emissions after-treatment devices on newly-manufactured engines and vehicles beginning with the model year 2007. each of these requirements could result in higher prices for tractors and diesel engines and increased fuel and maintenance costs. these adverse effects, combined with the uncertainty as to the reliability of the vehicles equipped with newly-designed diesel engines and the residual values that will be realized from the disposition of these vehicles, could increase our costs and have a material adverse effect on our business, results of operations and financial condition. our business may be affected by seasonal factors and harsh weather conditions. our business is subject to seasonal trends common in the trucking industry. we typically face reduced demand for shipping services during the winter months. further, freight shipments, operating costs and earnings are generally adversely affected by inclement weather conditions. these factors generally result in lower operating results during the first and fourth quarters of the year. see managements discussion and analysis of financial condition and results of operationsseasonality.our reputation and financial results could be harmed in the event of accidents or incidents. we are exposed to liabilities that are unique to the services we provide. such liabilities may relate to an accident or incident involving one of our trucks, and could involve significant potential claims of injured employees and other third parties. the amount of our insurance coverage may not be adequate to cover potential claims or liabilities and we may be forced to bear substantial costs due to one or more accidents. substantial claims resulting from an accident in excess of our related insurance coverage would harm | 1 | < 0.1% | |
| RISK FACTORS You should carefully consider the following risks before making an investment decision. Our business, operating results and financial condition could be adversely affected by any of the following risks. The trading price of our common stock could decline due to any of these risks, and you could lose all or part of your investment. You should also refer to the other information set forth in this prospectus, including our financial statements and the related notesOur Performance will Depend on Market Acceptance of Our Payment Management Software and Services Substantially all of our revenues come from the license and maintenance of our payment management offerings and sales of related products and services Any reduction in demand for our payment management solutions, or lack of meaningful growth in the market for electronic and payment management solutions could have a material adverse effect on our business, operating results and financial condition. Our PayBase software products are designed to provide a single platform to control, manage and issue all payments, whether paper-based or electronic, across an enterprise. Our future performance will depend to a large degree upon the market acceptance of PayBase as a payment management solution. Our prospects will also depend upon enterprises seeking to enhance their payment functions to integrate electronic payment capabilities. In addition, our future results will depend on the continued market acceptance of desktop software for use in a departmental setting, including our LaserCheck solution, as well as our ability to introduce enhancements to meet the market's evolving needs for secure, payment management solutionsOur Fixed Costs May Lead to Fluctuations in Operating Results if Our Revenues are Below Expectations A significant percentage of our expenses, particularly personnel costs and rent, are relatively fixed, and based in part on expectations of future revenues. We may be unable to reduce spending in a timely manner to compensate for any significant fluctuations in revenues. Accordingly, shortfalls in revenues may cause significant variations in operating results in any quarterFactors that could cause these fluctuations include the following: . the timing of orders and . the incurrence of costs longer sales cycles, relating to the integration particularly due to increased of software products and average selling prices of our operations in connection with payment solutions acquisitions of technologies or businesses . the timing and market acceptance of new products or product enhancements by either us or our competitors . delivery interruptions relating to equipment and supplies purchased from third-party vendors, which could delay system sales . the timing of product implementations, which are highly dependent on customers' resources and discretion . economic conditions which may affect our customers' and potential customers' budgets for technological expenditures Because of these factors, we believe that period to period comparisons of our results of operations are not necessarily meaningful. In addition, it is possible that in some future quarters our results of operations will be below the expectations of public market analysts and investors, and in that case the price of our common stock could be materially adversely affectedOur First and Third Quarter Revenues Can be Less Than the Preceding Quarter's Revenues During our second fiscal quarter ended December 31, revenues have typically increased as customers on a calendar-based fiscal year completed their capital spending plans. During our third fiscal quarter ended March 31, revenues have typically declined as customers focus internal resources on statutory and regulatory reporting requirements. Our fourth fiscal quarter ended June 30, generally has the highest revenues as customers complete 6 projects before summer, when activity in many corporate financial departments tends to slow. As a result, we have historically experienced first quarter revenues that are lower than those of the immediately preceding quarterOur Business Can be Adversely Affected by Problems with Third-Party Hardware Our business can be adversely affected by problems with third-party hardware. For example, in fiscal 1997, we experienced a significant problem with a third-party printer that we were then reselling which had a material adverse effect on our operating results. We revised and enhanced our quality assurance control programs and now utilize multiple printers and printer vendors. However, any repetition of these or similar problems could have a material adverse effect on our business, operating results and financial conditionOur Success Depends on Our Ability to Develop New and Enhanced Payment Management Software and Services The payment management software market is subject to rapid technological change and our success is dependent on the ability to develop new and enhanced payment management software, services and related products. Trends which could have a critical impact on Bottomline include: . rapidly changing technology that could require us to make our products compatible with new database or network systems; . evolving industry standards and mandates, such as those mandated by the National Automated Clearing House Association and by the Debt Collection Improvement Act of 1996; and . developments and changes relating to the Internet that we must address as we introduce Internet-capable productsIf we are unable to develop and introduce new products, or enhancements to existing products, in a timely and successful manner, our business, operating results and financial condition could be materially adversely affected Increased Competition May Result in Price Reductions and Decreased Demand for Our Products and Services The market for payment management software is intensely competitive and characterized by rapid technological change. Growing competition may result in price reductions of our products and services, reduced revenues and gross margins and loss of market share, any one of which could have a material adverse effect on our business, operating results and financial conditionSome competitors in our market have longer operating histories, significantly greater financial, technical, marketing and other resources, greater brand recognition and a larger installed customer base than we do. In addition, current and potential competitors may make strategic acquisitions or establish cooperative relationships to expand their product offerings and to offer more comprehensive solutions. We also expect to face additional competition as other established and emerging companies enter the market for payment management solutions. See "Business--Competition." Rapid Growth Could Strain Our Personnel, Systems and ControlsOur rapid growth has sometimes strained, and may in the future strain, our managerial and other resources. Our ability to manage growth will depend in part on our ability to continue to enhance our operating, financial and management information systems. We cannot assure you that our personnel, systems and controls will be adequate to support our growth. If we are unable to manage growth effectively, the quality of our services, our ability to retain key personnel and our business, operating results and financial condition could be materially adversely affected. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." 7 We Depend on a Few Key Employees Who Are Skilled in Electronic Commerce, Payment Methodology and Internet and Other TechnologiesOur success depends upon the efforts and ability of our executive officers and key technical employees who are skilled in electronic commerce, payment methodology and regulation, and Internet, database and network technologies We currently do not maintain "key man" life insurance policies on any of our employees. While some of our executive officers have employment agreements with us, the loss of the services of any of our senior executive officers or other key employees could have a material adverse effect on our business, operating results and financial condition. See "Management." We Must Attract and Retain Highly Skilled Personnel with Knowledge of Electronic Payments and the Banking IndustryWe are dependent upon the ability to attract, hire, train and retain highly skilled technical, sales and marketing, and support personnel, particularly with expertise in electronic payment technology and knowledge of the banking industry. Competition for qualified personnel is intense. In addition, our location in Portsmouth, New Hampshire may limit our access to skilled personnel. Any failure to attract, hire or retain qualified personnel could have a material adverse effect on our business, operating results and financial condition. In addition, we plan to expand our sales and marketing and customer support organizations. Based on our experience, it takes an average of six months for a salesperson to become fully productive. We cannot assure you that we will be successful in increasing the productivity of our sales personnel, and the failure to do so could have a material adverse effect on our business, operating results and financial conditionUndetected Year 2000 Problems and Claims Regarding Non-Compliant Discontinued Products Could Have an Adverse Effect on Our Business Computer systems and software must accept four digit entries to distinguish 21st century dates from 20th century dates. As a result, many software and computer systems may need to be upgraded in order to be year 2000 compliantSignificant uncertainties exist in the software industry concerning the potential effects associated with such compliance. We have assessed the impact of year 2000 compliance on our products and systems. We cannot, however, be certain that we have identified all of the potential risks to our business that could result from matters related to the year 2000. We have identified the following risks that you should be aware of: . Year 2000 problems that affect our internal systems. We have relied on the certifications by our software vendors regarding the year 2000 readiness of our internal software systems and have not conducted independent tests of these systems. It is possible that these systems could contain undetected problems that could cause serious and costly disruptions which would have a material adverse effect on our business, operating results and financial condition. . Year 2000 problems that affect our discontinued products. We have notified customers that had purchased DOS based products that their products were not year 2000 compliant and that we would no longer be supporting those products. Based on the notification we provided and the contractual provisions limiting liability contained in our standard terms and conditions which governed the sale of our DOS based products, we do not believe there are significant risks to our business relating to year 2000 compliance of these products. However, we cannot assure you that customers who purchased these products will not assert claims against us, which could result in costly litigation which diverts management's attention and could have a material adverse effect on our business, operating results and financial condition. . Undetected year 2000 problems that could affect our currently supported products. We believe that all of our products that have been installed after February 1997 were year 2000 compliant at the time of installation. However, although we have tested such products for year 2000 compliance, we cannot be certain that these tests have detected all potential year 2000 problems. The failure of our currently supported products to be fully year 2000 compliant could result in claims by or liability to our customers, which could have a material adverse effect on our business, operating results and financial condition. 8 Undetected Bugs in Our Software Could Adversely Affect the Performance of Our Software and Demand for Our ProductsOur software products could contain errors or "bugs" that we have not been able to detect which could adversely affect their performance and reduce demand for our products. Additionally, we regularly introduce new releases and periodically introduce new versions of our software products. Any defects or errors in new products or enhancements could result in adverse customer reactions and negative publicity regarding Bottomline and our products and could have a material adverse effect on our business, operating results and financial condition. See "Business--Products and Services." Our Business Could be Subject to Product Liability ClaimsOur software and hardware products are designed to provide critical payment management functions and to limit the risk of fraud or loss in effecting such transactions. As a result, our products are critical to our customers and there is the potential for significant product liability claims. Our license agreements with customers typically place the responsibility for use of the system on the customer and contain provisions intended to limit our exposure to product liability claims. However, these limitation provisions may not preclude all potential claims. We have not experienced any product liability claims to date. However, a product liability claim brought against us, even if not successful, would likely be time consuming and costly. A successful liability claim could have a material adverse effect on our business, operating results and financial condition. See "Business--Products and Services." Our Business Could be Adversely Affected if We are Unable to Protect our Proprietary TechnologyWe rely upon a combination of patent, copyright and trademark laws and non- disclosure and other intellectual property contractual arrangements to protect our proprietary rights. We have one allowed United States patent application relating to certain security aspects of our dual payment process. However, we cannot assure you that our allowed patent, or any other patents that may be issued in the future, will be of sufficient scope and strength to provide meaningful protection of our technology or any commercial advantage to us, or that the patents will not be challenged, invalidated or circumvented. We enter into agreements with our employees and clients that seek to limit and protect the distribution of proprietary information. We cannot assure you that the steps we have taken to protect our property rights, however, will be adequate to deter misappropriation of proprietary information, and we may not be able to detect unauthorized use and take appropriate steps to enforce our intellectual property rights. See "Business--Proprietary Rights." Others Could Claim That We Infringe Their Intellectual PropertyAlthough we believe that our products and services do not infringe upon the intellectual property rights of others and that we have all rights necessary to utilize the intellectual property employed in our business, we are subject to the risk of claims alleging infringement of third-party intellectual property rights. These claims could require us to spend significant sums in litigation, pay damages, delay product installments, develop non-infringing intellectual property or acquire licenses to intellectual property that is the subject of the infringement claim. Therefore, these claims could have a material adverse effect on our business, operating results and financial condition. See "Business--Proprietary Rights." We Intend to Pursue Strategic Acquisitions and Our Business Could be Materially Adversely Affected if We Fail to Adequately Integrate Acquired BusinessesAs part of our overall business strategy, we intend to pursue strategic acquisitions that would provide additional product or service offerings, additional industry expertise, a broader client base or an expanded geographic presence. Any future acquisition could result in the use of significant amounts of cash, potentially dilutive issuances of equity securities, or the incurrence of debt or amortization expenses related to goodwill and other intangible assets, any of which could materially adversely affect our business, operating results and financial condition. In addition, acquisitions involve numerous risks, including: . difficulties in the assimilation of the operations, technologies, products and personnel of the acquired company; . the diversion of management's attention from other business concerns; 9 . risks of entering markets in which we have no or limited prior experience; and . the potential loss of key employees of the acquired companyFrom time to time, we have engaged in discussions with third parties concerning potential acquisitions of product lines, technologies and businesses Trading in Our Shares Could be Subject to Extreme Price Fluctuations and You Could Have Difficulty Trading Your Shares The market for shares in newly public technology companies is subject to extreme price and volume fluctuations. Although our common stock will be quoted on the Nasdaq National Market, an active trading market may not develop and be sustained after this offeringDeclines in Our Stock Price Could Lead to Costly Litigation That Could Adversely Affect Our Business Securities class action litigation has often been brought against companies that experience declines in the market price of their securities. Litigation brought against us could result in substantial costs and a diversion of management's attention, which could have a material adverse effect on our business, operating results and financial conditionYou Will Experience an Immediate and Substantial Dilution in the Book Value of Your Investment The public offering price per share of common stock is substantially higher than the net tangible book value per share of our common stock. Purchasers of shares of common stock in this offering will experience immediate and substantial dilution of $9.24 in the pro forma net tangible book value per share of common stock. The exercise of outstanding options to purchase our common stock will result in additional dilution per share. See "Dilution." Certain Provisions of Delaware Law and Our Charter and By-law Provisions May Make a Takeover of Our Company More DifficultWe will be subject to the anti-takeover provisions of Section 203 of the Delaware General Corporation Law. Section 203 could delay or prevent a third party or a significant stockholder from acquiring control of Bottomline. In addition, our charter and by-laws may have the effect of discouraging, delaying or preventing a merger, tender offer or proxy contest involving Bottomline. Any of these anti-takeover provisions could lower the market price of the common stockFuture Sales by Existing Stockholders Could Depress the Market Price of Our Common Stock Sales of our common stock in the public market following this offering could adversely affect the market price of our common stock. All of the shares offered under this prospectus will be freely tradable in the open market, and . 101,667 additional shares may be sold immediately after completion of this offering; . 6,327,749 additional shares may be sold upon the expiration of 180-day lock-up agreements; . 2,499 additional shares may be sold 90 days after the completion of this offering as a result of the exercise of vested options; and . 415,206 additional shares may be sold upon the expiration of the lock- up agreements as a result of the exercise of vested options.This prospectus contains forward-looking statements that involve risks and uncertainties. These forward-looking statements are usually accompanied by words such as "believes," "anticipates," "plans," "expects" and similar expressions. Our actual results may differ materially from the results discussed in the forward-looking statements because of factors such as the Risk Factors discussed above. 10 | 1 | < 0.1% | |
| risk factors investing in our classa common stock involves risks. you should carefully consider the information in this prospectus, including the matters addressed under cautionary note regarding forward-looking statements, and the following risks before making an investment decision. the trading price of our classa common stock could decline due to any of these risks, and you may lose all or part of your investment. risks related to the oil and natural gas industry and our business oil and natural gas prices are volatile. a substantial or extended decline in commodity prices may adversely affect our business, financial condition or results of operations and our ability to meet our capital expenditure obligations and financial commitments. the prices we receive for our oil and natural gas production heavily influence our revenue, profitability, access to capital and future rate of growth. natural gas, ngls and oil are commodities and, therefore, their prices are subject to wide fluctuations in response to relatively minor changes in supply and demand. historically, the commodities market has been volatile. this market will likely continue to be volatile in the future. the prices we receive for our production, and the levels of our production, depend on numerous factors beyond our control. these factors include the following: worldwide and regional economic conditions impacting the global supply and demand for natural gas, ngls and oil; the price and quantity of foreign imports; political conditions in or affecting other producing countries, including conflicts in the middle east, africa, south america and russia; the level of global exploration and production; the level of global inventories; prevailing prices on local price indices in the areas in which we operate; the proximity, capacity, cost and availability of gathering and transportation facilities; localized and global supply and demand fundamentals and transportation availability; weather conditions; technological advances affecting energy consumption; the price and availability of alternative fuels; and domestic, local and foreign governmental regulation and taxes. furthermore, the worldwide financial and credit crisis in recent years has reduced the availability of liquidity and credit to fund the continuation and expansion of industrial business operations worldwide resulting in a slowdown in economic activity and recession in parts of the world. this has reduced worldwide demand for energy and resulted in lower natural gas, ngls and oil prices. lower commodity prices will reduce our cash flows and borrowing ability. we may be unable to obtain needed capital or financing on satisfactory terms, which could lead to a decline in our reserves as existing reserves are depleted. lower commodity prices may also reduce the amount of natural gas, ngls and oil that we can produce economically. if commodity prices further decrease, a significant portion of our exploitation, development and exploration projects could become uneconomic. this may result in our having to make significant downward adjustments to 23 our estimated proved reserves. as a result, a substantial or extended decline in commodity prices may materially and adversely affect our future business, financial condition, results of operations, liquidity or ability to finance planned capital expenditures.our development and exploratory drilling efforts and our well operations may not be profitable or achieve our targeted returns. we have acquired significant amounts of unproved property in order to further our development efforts and expect to continue to undertake acquisitions in the future. development and exploratory drilling and production activities are subject to many risks, including the risk that no commercially productive reservoirs will be discovered. we acquire unproved properties and lease undeveloped acreage that we believe will enhance our growth potential and increase our results of operations over time. however, we cannot assure you that all prospects will be economically viable or that we will not abandon our investments. additionally, we cannot assure you that unproved property acquired by us or undeveloped acreage leased by us will be profitably developed, that wells drilled by us in prospects that we pursue will be productive or that we will recover all or any portion of our investment in such unproved property or wells.properties we acquire may not produce as projected, and we may be unable to determine reserve potential, identify liabilities associated with the properties that we acquire or obtain protection from sellers against such liabilities. acquiring oil and natural gas properties requires us to assess reservoir and infrastructure characteristics, including recoverable reserves, development and operating costs and potential environmental and other liabilities. such assessments are inexact and inherently uncertain. in connection with the assessments, we perform a review of the subject properties, but such a review will not reveal all existing or potential problems. in the course of our due diligence, we may not inspect every well or pipeline. we cannot necessarily observe structural and environmental problems, such as pipe corrosion, when an inspection is made. we may not be able to obtain contractual indemnities from the seller for liabilities created prior to our purchase of the property. we may be required to assume the risk of the physical condition of the properties in addition to the risk that the properties may not perform in accordance with our expectations.our exploitation, development and exploration projects require substantial capital expenditures. we may be unable to obtain required capital or financing on satisfactory terms, which could lead to a decline in our reserves. the oil and natural gas industry is capital intensive. we make and expect to continue to make substantial capital expenditures for the exploitation, development and acquisition of oil and natural gas reserves. we expect to fund 2014 capital expenditures with cash generated by operations, the proceeds of this offering, borrowings under our revolving credit facility and possibly through capital market transactions. the actual amount and timing of our future capital expenditures may differ materially from our estimates as a result of, among other things, oil and natural gas prices, actual drilling results, the availability of drilling rigs and other services and equipment, and regulatory, technological and competitive developments. a reduction in commodity prices from current levels may result in a decrease in our actual capital expenditures, which would negatively impact our ability to grow production. we intend to finance our future capital expenditures primarily through cash flow from operations and through borrowings under our revolving credit facility. see managements discussion and analysis of financial condition and results of operationsliquidity and capital resources. our cash flow from operations and access to capital are subject to a number of variables, including: our proved reserves; the level of hydrocarbons we are able to produce from existing wells; the prices at which our production is sold; 24 our ability to acquire, locate and produce new reserves; and our ability to borrow under our credit facility. if our revenues or the borrowing base under our revolving credit facility decreases as a result of lower oil and natural gas prices, operating difficulties, declines in reserves or for any other reason, we may have limited ability to obtain the capital necessary to sustain our operations and growth at current levels. if additional capital is needed, we may not be able to obtain debt or equity financing on terms acceptable to us, if at all. if cash flow generated by our operations or available borrowings under our revolving credit facility are not sufficient to meet our capital requirements, the failure to obtain additional financing could result in a curtailment of our operations relating to development of our properties, which in turn could lead to a decline in our reserves and production, and would adversely affect our business, financial condition and results of operations.drilling for and producing oil and natural gas are high risk activities with many uncertainties that could adversely affect our business, financial condition or results of operations. our future financial condition and results of operations will depend on the success of our exploitation, development and acquisition activities, which are subject to numerous risks beyond our control, including the risk that drilling will not result in commercially viable oil and natural gas production. our decisions to purchase, explore, develop or otherwise exploit prospects or properties will depend in part on the evaluation of data obtained through geophysical and geological analyses, production data and engineering studies, the results of which are often inconclusive or subject to varying interpretations. for a discussion of the uncertainty involved in these processes, see reserve estimates depend on many assumptions that may turn out to be inaccurate. any material inaccuracies in reserve estimates or underlying assumptions will materially affect the quantities and present value of our reserves. in addition, our cost of drilling, completing and operating wells is often uncertain before drilling commences. further, many factors may curtail, delay or cancel our scheduled drilling projects, including the following: delays imposed by or resulting from compliance with regulatory requirements including limitations resulting from wastewater disposal, discharge of greenhouse gases, and limitations on hydraulic fracturing; pressure or irregularities in geological formations; shortages of or delays in obtaining equipment and qualified personnel or in obtaining water for hydraulic fracturing activities; equipment failures or accidents; lack of available gathering facilities or delays in construction of gathering facilities; lack of available capacity on interconnecting transmission pipelines; adverse weather conditions, such as blizzards, tornados and ice storms; issues related to compliance with environmental regulations; environmental hazards, such as oil and natural gas leaks, oil spills, pipeline and tank ruptures, encountering naturally occurring radioactive materials, and unauthorized discharges of brine, well stimulation and completion fluids, toxic gases or other pollutants into the surface and subsurface environment; declines in oil and natural gas prices; limited availability of financing at acceptable terms; title problems or legal disputes regarding leasehold rights; and limitations in the market for oil and natural gas. our identified drilling locations are scheduled over many years, making them susceptible to uncertainties that could materially alter the occurrence or timing of their drilling. in addition, we may not be able to raise the substantial amount of capital that would be necessary to drill such locations. our management team has specifically identified and scheduled certain drilling locations as an estimation of our future multi-year drilling activities on our existing acreage. these locations represent a significant part of our growth strategy. our ability to drill and develop these locations depends on a number of uncertainties, including oil and natural gas prices, the availability and cost of capital, drilling and production costs, availability of drilling services and equipment, drilling results, lease expirations, gathering system and pipeline transportation constraints, access to and availability of water sourcing and distribution systems, regulatory approvals and other factors. because of these uncertain factors, we do not know if the numerous potential well locations we have identified will ever be drilled or if we will be able to produce natural gas or oil from these or any other potential locations. in addition, unless production is established within the spacing units covering the undeveloped acres on which some of the potential locations are obtained, the leases for such acreage will expire. as such, our actual drilling activities may materially differ from those presently identified.we may not be able to generate sufficient cash to service all of our indebtedness and may be forced to take other actions to satisfy our obligations under applicable debt instruments, which may not be successful. our ability to make scheduled payments on or to refinance our indebtedness obligations, including our $750million revolving credit facility and our senior unsecured notes, depends on our financial condition and operating performance, which are subject to prevailing economic and competitive conditions and certain financial, business and other factors beyond our control. we may not be able to maintain a level of cash flows from operating activities sufficient to permit us to pay the principal, premium, if any, and interest on our indebtedness. if our cash flows and capital resources are insufficient to fund debt service obligations, we may be forced to reduce or delay investments and capital expenditures, sell assets, seek additional capital or restructure or refinance indebtedness. our ability to restructure or refinance indebtedness will depend on the condition of the capital markets and our financial condition at such time. any refinancing of indebtedness could be at higher interest rates and may require us to comply with more onerous covenants, which could further restrict business operations. the terms of existing or future debt instruments may restrict us from adopting some of these alternatives. in addition, any failure to make payments of interest and principal on outstanding indebtedness on a timely basis could harm our ability to incur additional indebtedness. in the absence of sufficient cash flows and capital resources, we could face substantial liquidity problems and might be required to dispose of material assets or operations to meet debt service and other obligations. our credit facility and the indenture governing our senior unsecured notes currently restrict our ability to dispose of assets and our use of the proceeds from such disposition. we may not be able to consummate those dispositions, and the proceeds of any such disposition may not be adequate to meet any debt service obligations then due. these alternative measures may not be successful and may not permit us to meet scheduled debt service obligations. in addition, we will require significant additional capital over a prolonged period in order to pursue the development of these locations, and we may not be able to raise or generate the capital required to do so. any drilling activities we are able to conduct on these potential locations may not be successful or result in our ability to add additional proved reserves to our overall proved reserves or may result in a downward revision of our estimated proved reserves, which could have a material adverse effect on our future business and results of operations.restrictions in our existing and future debt agreements could limit our growth and our ability to engage in certain activities. our revolving credit facility and the indenture governing our senior unsecured notes contain a number of significant covenants, including restrictive covenants that may limit our ability to, among other things: incur additional indebtedness; sell assets; 26 make loans to others; make investments; enter into mergers; make certain payments; hedge future production or interest rates; incur liens; and engage in certain other transactions without the prior consent of the lenders. in addition, our revolving credit facility requires us to maintain certain financial ratios or to reduce our indebtedness if we are unable to comply with such ratios. these restrictions may also limit our ability to obtain future financings to withstand a future downturn in our business or the economy in general, or to otherwise conduct necessary corporate activities. we may also be prevented from taking advantage of business opportunities that arise because of the limitations that the restrictive covenants under our credit facilities impose on us. our revolving credit facility limits the amount we can borrow up to a borrowing base amount, which the lenders, in their sole discretion, determine on a semi-annual basis based upon projected revenues from the oil and natural gas properties securing our loan. the lenders can unilaterally adjust the borrowing base and the borrowings permitted to be outstanding under our revolving credit facility. any increase in the borrowing base requires the consent of the lenders holding 100% of the commitments. if the requisite number of lenders do not agree to a proposed borrowing base, then the borrowing base will be the highest borrowing base acceptable to such lenders. outstanding borrowings in excess of the borrowing base must be repaid. a breach of any covenant in our revolving credit facility would result in a default under the applicable agreement after any applicable grace periods. a default, if not waived, could result in acceleration of the indebtedness outstanding under the relevant facility and in a default with respect to, and an acceleration of, the indebtedness outstanding under other debt agreements. the accelerated indebtedness would become immediately due and payable. if that occurs, we may not be able to make all of the required payments or borrow sufficient funds to refinance such indebtedness. even if new financing were available at that time, it may not be on terms that are acceptable to us.our derivative activities could result in financial losses or could reduce our earnings. to achieve more predictable cash flows and reduce our exposure to adverse fluctuations in the prices of oil and natural gas, we enter into commodity derivative contracts for a significant portion of our production, primarily consisting of put spreads and three-way collars. see managements discussion and analysis of financial condition and results of operationsour propertiessources of our revenuesrealized prices on the sale of oil, natural gas and ngls. accordingly, our earnings may fluctuate significantly as a result of changes in fair value of our derivative instruments. derivative instruments also expose us to the risk of financial loss in some circumstances, including when: production is less than the volume covered by the derivative instruments; the counterparty to the derivative instrument defaults on its contractual obligations; there is an increase in the differential between the underlying price in the derivative instrument and actual prices received; or there are issues with regard to legal enforceability of such instruments. the use of derivatives may, in some cases, require the posting of cash collateral with counterparties. if we enter into derivative instruments that require cash collateral and commodity prices or interest rates change in a 27 manner adverse to us, our cash otherwise available for use in our operations would be reduced which could limit our ability to make future capital expenditures and make payments on our indebtedness, and which could also limit the size of our borrowing base. future collateral requirements will depend on arrangements with our counterparties, highly volatile oil and natural gas prices and interest rates. in addition, derivative arrangements could limit the benefit we would receive from increases in the prices for oil and natural gas, which could also have an adverse effect on our financial condition. our commodity derivative contracts expose us to risk of financial loss if a counterparty fails to perform under a contract. disruptions in the financial markets could lead to sudden decreases in a counterpartys liquidity, which could make them unable to perform under the terms of the contract and we may not be able to realize the benefit of the contract. we are unable to predict sudden changes in a counterpartys creditworthiness or ability to perform. even if we do accurately predict sudden changes, our ability to negate the risk may be limited depending upon market conditions. during periods of declining commodity prices, our derivative contract receivable positions generally increase, which increases our counterparty credit exposure. if the creditworthiness of our counterparties deteriorates and results in their nonperformance, we could incur a significant loss with respect to our commodity derivative contracts.reserve estimates depend on many assumptions that may turn out to be inaccurate. any material inaccuracies in reserve estimates or underlying assumptions will materially affect the quantities and present value of our reserves. the process of estimating oil and natural gas reserves is complex. it requires interpretations of available technical data and many assumptions, including assumptions relating to current and future economic conditions and commodity prices. any significant inaccuracies in these interpretations or assumptions could materially affect the estimated quantities and present value of our reserves. in order to prepare reserve estimates, we must project production rates and timing of development expenditures. we must also analyze available geological, geophysical, production and engineering data. the extent, quality and reliability of this data can vary. the process also requires economic assumptions about matters such as oil and natural gas prices, drilling and operating expenses, capital expenditures, taxes and availability of funds. actual future production, oil and natural gas prices, revenues, taxes, development expenditures, operating expenses and quantities of recoverable oil and natural gas reserves will vary from our estimates. any significant variance could materially affect the estimated quantities and present value of our reserves. in addition, we may adjust reserve estimates to reflect production history, results of exploration and development, existing commodity prices and other factors, many of which are beyond our control. you should not assume that the present value of future net revenues from our reserves is the current market value of our estimated reserves. we generally base the estimated discounted future net cash flows from reserves on prices and costs on the date of the estimate. actual future prices and costs may differ materially from those used in the present value estimate.approximately 78% of our net leasehold acreage is undeveloped, and that acreage may not ultimately be developed or become commercially productive, which could cause us to lose rights under our leases as well as have a material adverse effect on our oil and natural gas reserves and future production and, therefore, our future cash flow and income. as of december 31, 2013, approximately 78% of our net leasehold acreage was undeveloped, or acreage on which wells have not been drilled or completed to a point that would permit the production of commercial quantities of oil and natural gas regardless of whether such acreage contains proved reserves. unless production 28 is established on the undeveloped acreage covered by our leases, such leases will expire. our future oil and natural gas reserves and production and, therefore, our future cash flow and income are highly dependent on successfully developing our undeveloped leasehold acreage.our producing properties are located in the permian basin of west texas, making us vulnerable to risks associated with operating in one major geographic area. all of our producing properties are geographically concentrated in the permian basin of west texas. at december 31, 2013, all of our total estimated proved reserves were attributable to properties located in this area. as a result of this concentration, we may be disproportionately exposed to the impact of regional supply and demand factors, delays or interruptions of production from wells in this area caused by governmental regulation, processing or transportation capacity constraints, market limitations, water shortages or other drought or extreme weather related conditions or interruption of the processing or transportation of oil, natural gas or ngls.the marketability of our production is dependent upon transportation and other facilities, certain of which we do not control. if these facilities are unavailable, our operations could be interrupted and our revenues reduced. the marketing of oil, ngls and gas production depends in large part on the availability, proximity and capacity of pipelines and storage facilities, gas gathering systems and other transportation, processing and refining facilities, as well as the existence of adequate markets. if there is insufficient capacity available on these systems, or if these systems are unavailable to us, the price offered for our production could be significantly depressed, or we could be forced to shut in some production or delay or discontinue drilling plans and commercial production following a discovery of hydrocarbons while we construct our own facility. we also rely (and expect to rely in the future) on facilities developed and owned by third parties in order to store, process, transport and sell our oil, ngls and gas production. our plans to develop and sell our oil and gas reserves could be materially and adversely affected by the inability or unwillingness of third parties to provide sufficient transportation, storage or processing facilities to us, especially in areas of planned expansion where such facilities do not currently exist.extreme weather conditions could adversely affect our ability to conduct drilling activities in the areas where we operate. our exploration, exploitation and development activities and equipment could beadverselyaffected by extremeweather conditions, such aswinterstorms, which may cause a loss of production from temporary cessation of activity or lost or damaged facilities and equipment. for example, recent severe winter weather and the resulting extensive power outages caused our production in november to decline significantly from the prior month. such extreme weather conditions could also impact other areas of our operations, including access to our drilling and production facilities for routine operations, maintenance and repairs and the availability of, and our access to, necessary third-party services, such as gathering, processing, compression and transportation services. these constraints and the resulting shortages or high costs could delay or temporarily halt our operations and materially increase our operation and capital costs, which could have a material adverse effect on our business, financial condition and results of operations.we may incur losses as a result of title defects in the properties in which we invest. it is our practice in acquiring oil and natural gas leases or interests not to incur the expense of retaining lawyers to examine the title to the mineral interest at the time of acquisition. rather, we rely upon the judgment of lease brokers or landmen who perform the fieldwork in examining records in the appropriate governmental office before attempting to acquire a lease in a specific mineral interest. the existence of a material title deficiency can render a lease worthless and can adversely affect our results of operations and financial condition. while we do typically obtain title opinions prior to commencing drilling operations on a lease or in a unit, the failure of title may not be discovered until after a well is drilled, in which case we may lose the lease and the right to produce all or a portion of the minerals under the property. the development of our estimated proved undeveloped reserves may take longer and may require higher levels of capital expenditures than we currently anticipate. therefore, our estimated proved undeveloped reserves may not be ultimately developed or produced. at december 31, 2013, 57% of our total estimated proved reserves were classified as proved undeveloped. our approximately 31.3 mmboe of estimated proved undeveloped reserves will require an estimated $492 million of development capital over the next five years. development of these undeveloped reserves may take longer and require higher levels of capital expenditures than we currently anticipate. delays in the development of our reserves, increases in costs to drill and develop such reserves, or decreases in commodity prices will reduce the pv-10 value of our estimated proved undeveloped reserves and future net revenues estimated for such reserves and may result in some projects becoming uneconomic. in addition, delays in the development of reserves could cause us to have to reclassify our proved undeveloped reserves as unproved reserves.sec rules could limit our ability to book additional proved undeveloped reserves (puds) in the future. sec rules require that, subject to limited exceptions, proved undeveloped reserves may only be booked if they related to wells scheduled to be drilled within five years after the date of booking. this requirement has limited and may continue to limit our ability to book additional proved undeveloped reserves as we pursue our drilling program. moreover, we may be required to write down our proved undeveloped reserves if we do not drill those wells within the required five-year timeframe.if commodity prices decrease to a level such that our future undiscounted cash flows from our properties are less than their carrying value for a significant period of time, we will be required to take write-downs of the carrying values of our properties. accounting rules require that we periodically review the carrying value of our properties for possible impairment. based on specific market factors and circumstances at the time of prospective impairment reviews, and the continuing evaluation of development plans, production data, economics and other factors, we may be required to write down the carrying value of our properties. a writedown constitutes a non-cash charge to earnings. we may incur impairment charges in the future, which could have a material adverse effect on our results of operations for the periods in which such charges are taken.unless we replace our reserves with new reserves and develop those reserves, our reserves and production will decline, which would adversely affect our future cash flows and results of operations. producing oil and natural gas reservoirs generally are characterized by declining production rates that vary depending upon reservoir characteristics and other factors. unless we conduct successful ongoing exploitation, development and exploration activities or continually acquire properties containing proved reserves, our proved reserves will decline as those reserves are produced. our future reserves and production, and therefore our future cash flow and results of operations, are highly dependent on our success in efficiently developing and exploiting our current reserves and economically finding or acquiring additional recoverable reserves. we may not be able to develop, exploit, find or acquire sufficient additional reserves to replace our current and future production. if we are unable to replace our current and future production, the value of our reserves will decrease, and our business, financial condition and results of operations would be adversely affected.conservation measures and technological advances could reduce demand for oil and natural gas. fuel conservation measures, alternative fuel requirements, increasing consumer demand for alternatives to oil and natural gas, technological advances in fuel economy and energy generation devices could reduce demand for oil and natural gas. the impact of the changing demand for oil and gas services and products may have a material adverse effect on our business, financial condition, results of operations and cash flows. we depend upon several significant purchasers for the sale of most of our oil and natural gas production. the loss of one or more of these purchasers could, among other factors, limit our access to suitable markets for the oil and natural gas we produce. the availability of a ready market for any oil and/or natural gas we produce depends on numerous factors beyond the control of our management, including but not limited to the extent of domestic production and imports of oil, the proximity and capacity of pipelines, the availability of skilled labor, materials and equipment, the effect of state and federal regulation of oil and natural gas production and fede | 1 | < 0.1% | |
| risk factors an investment in our common stock involves significant risks and uncertainties. in addition to other information contained in this prospectus, you should carefully consider the risks described below before making a decision to acquire shares of our common stock offered by this prospectus. the occurrence of one of more of the following risks could cause the market price of our common stock to decline, and could cause you to lose all or a part of your investment. some statements in this prospectus, including statements in the following risk factors, constitute forward looking statements. see the section entitled forward looking statements. all statements in the following risk factors that relate to our portfolio of properties in which we hold an ownership interest or manage, and square footage are presented as if the offering and the formation transactions had occurred as of june 30, 2004 and includes office and mixed-use properties (including retail), but excluding residential space and parking facilities. risks related to our properties and our businesswe generate a significant portion of our revenues as a result of our relationships with the california state teachers retirement system (calstrs). if we were to lose these relationships, our financial results and growth prospects would be significantly negatively affected. our relationships with calstrs are a significant factor in our ability to achieve our intended business growth. our separate account and joint venture relationships with calstrs provide us with substantial fee revenues. for the years ended december 31, 2003, 2002 and 2001, approximately 17.4%, 6.0% and 4.8%, respectively, of our revenue has been derived from these relationships. we cannot assure you that our relationships with calstrs will continue and we may not be able to replace these relationships with another strategic alliance that would provide comparable revenues. our interest in our calstrs joint venture is subject to a buy-sell provision, and is subject to purchase by calstrs upon the occurrence of certain events. under the buy-sell provision, either our operating partnership or calstrs can initiate a buy-out by delivering a notice to the other specifying a purchase price for all the joint ventures assets, and the other venture partner then has the option to sell its joint venture interest or purchase the interest of the initiating venture partner. the purchase price is based on what each venture partner would receive on liquidation if the joint ventures assets were sold for the specified price and the joint ventures liabilities paid and the remaining assets distributed to the joint venture partners. the buy-sell process can be initiated at any time after january 1, 2006. however, calstrs can initiate this provision earlier upon an event of default by us under the joint venture agreement or related management and development agreements or upon bankruptcy of our operating partnership or upon the death or disability of either mr. thomas or mr. sischo or the failure of either of them to devote the necessary time to perform their duties (unless replaced by an individual approved by calstrs) (a buyout default), or upon any transfer of stock of our company or limited partnership units in our operating partnership resulting in mr. thomas, his immediate family and controlled entities owning less than 30% of our securities entitled to vote for the election of directors. our operating partnership can initiate the buy-sell provision earlier than january 1, 2006 upon an event of default of calstrs. upon the occurrence of a buyout default allowing calstrs to initiate the buy-sell provisions prior to january 1, 2006, calstrs may instead elect to purchase our operating partnerships joint venture interest based on a three percent discount to the appraised fair market value. most of our fee arrangements under our separate account relationship with calstrs are terminable on 30 days notice. termination of either our joint venture or separate account relationship with calstrs could adversely affect our revenue and profitability and our ability to achieve our business plan by reducing our fee income and access to co-investment capital to acquire additional properties. the contribution arrangements for our properties and the payments to contributing parties were not negotiated on an arms-length basis and the consideration paid for our properties may exceed their fair market value. there were no arms-length negotiations with mr. thomas or the thomas entities contributing property or other interests with respect to the terms of the formation transactions. mr. thomas, who had significant influence in structuring the formation transactions, had a pre-existing ownership interest in the properties and will receive substantial economic benefits as a result of the formation transactions. further, in the course of structuring the formation transactions, mr. thomas had the ability to influence the type and level of benefits that he and our other executive officers will receive from us. we have not obtained any independent third-party appraisals, valuations or fairness opinions, in connection with establishing the terms of the formation transactions. the initial public offering price of our common stock was determined in consultation with the underwriters. the factors that were considered include prevailing market conditions, our capital structure, the value and historical performance of the properties we will receive interests in, the market capitalization and valuation of other publicly traded companies considered by us and the underwriters to be comparable to us and estimates of our business potential and earning prospects. the initial public offering price does not necessarily bear any relationship to our book value or the fair market value of our assets. as a result, the consideration we have committed to give in exchange for the contribution of properties and these other assets may later be determined to have exceeded the fair market value of these properties and assets.if we are unable to consummate the acquisitions described in this prospectus, our business prospects would be seriously harmed. we have an agreement with calstrs to increase our indirect ownership interest in arco plaza from 4.3% to 21.3% and to purchase a 25% interest in two of the six properties we asset manage for calstrs for an aggregate purchase price of approximately $34.8 million. this acquisition will be made on an as-is basis without any representations or warranties with respect to reflections i and reflections ii. in addition, we have a contract to acquire a 50% interest owned by a third party in one commerce square for $24.2 million, to repay existing indebtedness and redeem preferred equity held by an unaffiliated mezzanine lender on the property together totaling $22.0 million as of june 30, 2004, and to fund a required reserve of $4.2 million. our failure to consummate one or more of these acquisitions could adversely impact our revenue and profitability, thereby causing a significant downturn in our operating results and financial condition.our joint venture investments may be adversely affected by our lack of control or input on decisions or shared decision-making authority or disputes with our co-venturers. we hold interests in each of our operating properties in a joint venture or partnership. as a result, we do not hold a 100% ownership interest in any of our operating properties and we do not exercise sole decision-making authority regarding the property, joint venture or other entity, including with respect to cash distributions or the sale of the property. we will hold interests in three of our properties through our joint venture with calstrs. our joint venture with calstrs requires a unanimous vote of our management committee on certain major decisions, including approval of annual business plans and budgets, financings and refinancings, and additional capital calls not in compliance with the approved annual plan. all other decisions, including sales of properties, are made based upon a majority decision of the management committee, which currently consists of two members appointed by calstrs and one member appointed by us. we will own an 89% interest in each of one commerce square and two commerce square, and mr. thomas and entities controlled by him will hold the remaining 11% minority interests in each property. we are also co-invested with another party in 2121 market street. we have entered into a joint venture agreement with weingarten realty investors for the development of part of the land constituting our four points centre project in austin, texas. we expect to co-invest in the future through other partnerships, joint ventures or other entities, acquiring non-controlling interests in or sharing responsibility for managing the affairs of a property, partnership, joint venture or other entity. 22 investments in partnerships, joint ventures, or other entities may, under certain circumstances, involve risks including third parties who may have economic or other business interests or goals which are inconsistent with our business interests or goals, and may be in a position to take actions contrary to our policies or objectives. these investments may also have the risk of impasses on significant decisions, because neither we nor our partner or co-venturer would have full control over the partnership or joint venture. disputes between us and our partners or co-venturers may result in litigation or arbitration that would increase our expenses and prevent our officers and/or directors from focusing their full time and effort on our business. in addition, under the principles of agency and partnership law, we may in certain circumstances be liable for the actions of our third-party partners or co-venturers such as if a partner or co-venturer were to become bankrupt and default on its reimbursement and contribution obligations to us, were to subject property owned by the partnership or joint venture to liabilities in excess of those contemplated by the partnership or joint venture agreement, or were to incur debts or liabilities on behalf of the partnership or joint venture in excess of the authority otherwise granted by the partnership or joint venture agreement. in some joint ventures or other investments we may make, if the entity in which we invest is a limited partnership, we may acquire all or a portion of our interest in such partnership as a general partner. in such event, we could be liable for all the liabilities of the partnership, although we would attempt to limit such liability to our investment in the partnership by investing through a subsidiary.calstrs has rights under our joint venture agreement that could adversely affect us. our joint venture agreement with calstrs includes provisions negotiated for the benefit of calstrs that could adversely affect us. unless otherwise determined by the management committee of the joint venture (two out of the three members of which are appointed by calstrs), we are required to use diligent efforts to sell each joint venture property within five years of that property reaching stabilization (defined as completion of the project and 85% of the net rentable area leased), except that the holding period for reflections i and reflections ii, both of which are 100% leased, will be separately determined by the joint venture management committee. with respect to these two properties, we are required to perform a hold/sell analysis at least annually, and make a recommendation to the management committee regarding the appropriate holding period, which could be less than five years. we have a right of first offer to purchase a joint venture property upon a required sale at a price we propose, and if calstrs accepts our offer we must close within 90 days. if we fail to effect a sale by the end of the specified holding period, we are subject to calstrs assuming control of the sale process. this may require us to sell a substantial portion of our assets at an inopportune time, or for prices that are lower than could be achieved if we had more flexibility in the timing for effecting sales.we are required to present certain investment opportunities to calstrs which may limit our opportunities to make investments for our own account or with other third parties. under our joint venture agreement with calstrs, until the earlier of may 1, 2007 or the date calstrs has contributed an aggregate of $250 million to the joint venture, including funds already invested as of june 30, 2004, we are required to first present to calstrs for potential investment by the joint venture all core plus and value-add office property investment opportunities involving a total capital investment of $10 million or more that are defined within calstrs guidelines as moderate or high risk projects. if calstrs fails to approve the investment within five business days of receipt of all required information, then we may pursue the opportunity for our own account or in joint venture with another third party investor. this obligation may limit our ability to obtain additional separate account relationships for non-core office properties, as investment opportunities for this type of property must be first presented by us to calstrs.we must expand our business to establish additional strategic alliances to decrease our dependence on our relationship with calstrs or our prospects for growth may be limited. we intend to establish and extend our business to encompass strategic relationships beyond our joint venture with calstrs. our business strategy includes co-investing with third parties and earning revenues from fee services and property management. currently, our only relationship where we serve as an investment advisor 23 and portfolio manager is with calstrs. in order to achieve our objectives of acting as an investment advisor and portfolio manager for others and decrease our dependence on our relationship with calstrs, we intend to establish new relationships and extend existing relationships and alliances with institutional and other investors. without adequate strategic partnerships and alliances in place, we may have to invest more equity than desired in property acquisitions and incur greater risk than we prefer on projects. in addition, our efforts with respect to projects may not be as effective as they would have been with the greater access to capital afforded by these strategic relationships. in many cases, the institutional investors with which we intend to form alliances already have extensive relationships with other property developers, managers and investment advisors. if we fail to establish, successfully manage or maintain these alliances, our ability to achieve business growth and revenue diversification could suffer and our business and operating results could be harmed.we depend on significant tenants, and their failure to pay rent could seriously harm our operating results and financial condition. on a pro forma basis as of june 30, 2004, the 20 largest tenants for properties in which we will hold an ownership interest upon the closing of this offering collectively leased 60.8% of the rentable square feet of space on an annualized basis, representing 89.2% of the total annualized rent generated by these properties. consolidated rail corporation which together with its wholly-owned subsidiary new york central lines, llc (conrail), which leases the substantial majority of space at two commerce square, accounted for approximately 41.5% of the total annualized rent on a pro forma basis at june 30, 2004. our existing lease with conrail expires in two stages in 2008 and 2009. conrail has subleased substantially all of its space under lease, and we have entered into direct lease agreements with many of these sublease tenants. however, these new leases are at lower rental rates, and we expect to experience a substantial decline in rental revenues from two commerce square when the existing lease with conrail expires. upon completion of this offering, our joint venture with calstrs will hold a 100% interest in reflections i and reflections ii and an 85% interest in arco plaza. arco plaza was approximately 50% leased at june 30, 2004. we have recently entered into several leases at our arco plaza property, some of which are for space that will become available in late 2004 due to the expiration of the lease held by bank of america for approximately 450,000 square feet. city national bank has leased 310,055 square feet of space in arco plaza with the first stage of occupancy commencing in august 2004. in addition, two additional leases for 226,694 square feet of space at arco plaza have recently been signed. these leases will commence in phases over the next three years. due to these new leases, we do not presently believe there will be a significant impact on the amount of space that is under lease at arco plaza as a result of the expiration of the bank of america lease. we rely on rent payments from our tenants as a source of cash to finance our business. any of our tenants may experience a downturn in its business that may weaken its financial condition. as a result, a tenant may delay lease commencement, fail to make rental payments when due, decline to extend a lease upon its expiration, become insolvent or declare bankruptcy. any tenant bankruptcy or insolvency, leasing delay or failure to make rental payments when due could result in the termination of the tenants lease and material losses to our company. in particular, if any of our significant tenants becomes insolvent, suffers a downturn in its business and decides not to renew its lease or vacates a property and prevents us from leasing that property by continuing to pay base rent for the balance of the term, it may seriously harm our business. failure on the part of a tenant to comply with the terms of a lease may give us the right to terminate the lease, repossess the applicable property and enforce the payment obligations under the lease. in those circumstances, we would be required to find another tenant. we cannot assure you that we would be able to find another tenant without incurring substantial costs, or at all, or that, if another tenant were found, we would be able to enter into a new lease on favorable terms. bankruptcy filings by or relating to one of our tenants could bar us from collecting pre-bankruptcy debts from that tenant or their property. a tenant bankruptcy would delay our efforts to collect past due balances under 24 the relevant leases, and could ultimately preclude full collection of these amounts. if a lease is assumed by the tenant in bankruptcy, all pre-bankruptcy amounts due under the lease must be paid to us in full. however, if a lease is rejected by a tenant in bankruptcy, we would have only a general unsecured claim for damages. any unsecured claim we hold against a bankrupt entity may be paid only to the extent that funds are available and only in the same percentage as is paid to all other holders of unsecured claims. we may recover substantially less than the full value of any unsecured claims in the event of the bankruptcy of a large tenant, which would harm our financial condition.our operating results depend upon the regional economies in which our properties are located and the demand for office and other mixed-use space and an economic downturn in these regions could harm our operating results. our operating and development properties are located in three geographic regions of the united states: the west coast, southwest and mid-atlantic regions. historically, the largest part of our revenues has been derived from our ownership and management of properties consisting primarily of office buildings. a decrease in the demand for office space in these geographic regions, and class a office space in particular, may have a greater adverse effect on our business and financial condition than if we owned a more diversified real estate portfolio. we are susceptible to adverse developments in these regions, such as business layoffs or downsizing, industry slowdowns, relocations of businesses, changing demographics, increased telecommuting, terrorist targeting of high-rise structures, infrastructure quality, increases in real estate and other taxes, costs of complying with government regulations or increased regulation and other factors, and the national and regional office space market such as oversupply of or reduced demand for office space. some of the regional issues we face include the more highly regulated and taxed economy of southern california and high local and municipal taxes for our philadelphia properties. any adverse economic or real estate developments in a local region, or any decrease in demand for office space resulting from the local regulatory environment, business climate or energy or fiscal problems, could adversely impact our revenue and profitability, thereby causing a significant downturn in our financial condition, results of operations, cash flow, the trading price of our common stock and impairing our ability to satisfy our debt service obligations.our debt level reduces cash available to fund business growth and may expose us to the risk of default under our debt obligations. as of june 30, 2004, our total pro forma consolidated indebtedness is approximately $295.9 million. in addition, we own interests in unconsolidated entities subject to total long-term debt in the amount of $195.0 million as of june 30, 2004. our mortgage loans, which comprise a portion of both the consolidated and unconsolidated indebtedness, are secured by first deeds of trust in the related real property. our mezzanine loans and other secured loans, which comprise the remaining portion of both the consolidated and unconsolidated indebtedness, are secured by our direct or indirect ownership interest in the entity that owns the related real property. additionally, mr. thomas and entities controlled by him have guaranteed loans on our 2101 market street and four points centre properties up to a maximum amount of $5.5 million. in connection with this offering, we are in discussions that would release mr. thomas and his controlled entities from these guarantees and replace these personal guarantees with a guarantee by us or our operating partnership or both. the mezzanine lender on two commerce square has not agreed to release mr. thomas from guarantees of the mezzanine loans on the property equal to approximately $7.5 million and we have accordingly agreed to indemnify mr. thomas in the event his guarantees are called upon. we may incur significant additional debt to finance future acquisition and development activities. it is possible the required payments of principal and interest on borrowings may leave us with insufficient cash to operate our properties profitably. our level of debt and the limitations imposed on us by our debt agreements could have significant adverse consequences, including the following: our cash flow may be insufficient to meet our required principal and interest payments or to pay dividends; we may be unable to borrow additional funds as needed or on favorable terms; 25 we may be unable to refinance our indebtedness at maturity or the refinancing terms may be less favorable than the terms of our original indebtedness; we anticipate that a significant portion of our debt will bear interest at variable rates, and increases in interest rates could materially increase our interest expense; we may be unable to distribute funds from a property to our operating partnership or apply such funds to cover expenses related to another property; we could be required to dispose of one or more of our properties, possibly on disadvantageous terms; we could default on our obligations and the lenders or mortgagees may foreclose on our properties that secure their loans and receive an assignment of rents and leases; we could violate covenants in our loan documents, including provisions that may limit our ability to further mortgage a property, make distributions, acquire additional properties, repay indebtedness prior to a set date without payment of a premium or other pre-payment penalties, all of which would entitle the lenders to accelerate our debt obligations; a default under any one of our mortgage loans with cross default provisions could result in a default on other indebtedness; and because we have agreed to use commercially reasonable efforts to maintain certain debt levels to provide the ability for mr. thomas and entities controlled by him to guarantee debt of $210 million, and have agreed to make an additional $11 million of debt available for guarantee by mr. edward fox, one of our non-employee directors, and by mr. richard gilchrist, an individual formerly affiliated with maguire thomas partners, we may not be able to refinance our debt when it would otherwise be advantageous to do so or to reduce our indebtedness when our board of directors thinks it is prudent. if any one of these events were to occur, our revenue and profitability could be adversely impacted, causing a significant downturn in our financial condition, results of operations, cash flow, and the trading price of our common stock and impairing our ability to satisfy our debt service obligations. in addition, foreclosures could also result in our being liable under the terms of our indemnification agreement with mr. thomas if we were required to sell all or a portion of our interests in one commerce square or two commerce square.following the offering we will have a substantial amount of debt which bears interest at variable rates. our failure to hedge effectively against interest rate changes may adversely affect our results of operations. we will have a substantial amount of debt at floating interest rates following the consummation of this offering. as of june 30, 2004, $7.5 million of our consolidated debt and $175 million of our unconsolidated debt was at variable interest rates. subsequent to june 30, 2004, the $175 million loan was refinanced with a $325million variable rate loan, consisting of a $200 million mortgage facility currently outstanding (as to which we have purchased an interest rate cap) with an additional borrowing capacity of up to $125million of senior mezzanine debt (as to which we are required to enter into interest rate cap agreements for each advance). in addition, we entered into a $25 million junior mezzanine variable rate loan. we have purchased an interest rate cap for this loan. we intend to generally limit our exposure to interest rate volatility by using interest rate hedging arrangements and swap agreements. these arrangements involve risks, including that our hedging or swap transactions might not achieve the desired effect in eliminating the impact of interest rate fluctuations, or that counterparties may fail to honor their obligations under these arrangements. as a result, these arrangements may not be effective in reducing our exposure to interest rate fluctuations and this could reduce our revenue, require us to modify our leverage strategy, and adversely affect our expected investment returns. we may be unable to complete acquisitions necessary to grow our business, and even if consummated, we may fail to successfully operate these acquired properties. our planned growth strategy includes the acquisition of additional properties as opportunities arise. we regularly evaluate the top 20 markets in the united states for office, mixed-use and other properties for strategic opportunities. our ability to acquire properties on favorable terms and successfully operate them is subject to the following significant risks: the potential inability to acquire a desired property because of competition from other real estate investors with more available capital, including other real estate operating companies, real estate investment trusts and investment funds; we may be unable to generate sufficient cash from operations, or obtain the necessary debt or equity to consummate an acquisition or, if obtainable, it may not be on favorable terms; we may need to spend more than budgeted amounts to make necessary improvements or renovations to acquired properties; competition from other potential acquirors may significantly increase the purchase price, even if we are able to acquire a desired property; agreements for the acquisition of office properties are typically subject to customary conditions to closing, including satisfactory completion of due diligence investigations, and we may spend significant time and money on a potential acquisition we eventually decide not to pursue; we may be unable to quickly and efficiently integrate new acquisitions, particularly acquisitions of portfolios of properties, into our existing operations; market conditions may result in higher than expected vacancy rates and lower than expected rental rates; and we may acquire properties subject to liabilities without any recourse, or with only limited recourse, for unknown liabilities such as clean-up of undisclosed environmental contamination, claims by tenants, vendors or other persons dealing with the former owners of the properties and claims for indemnification by general partners, directors, officers and others indemnified by the former owners of the properties. if we cannot complete property acquisitions on favorable terms, or operate acquired properties to meet our expectations, our revenue and profitability could be adversely impacted, causing a significant downturn in our financial condition, results of operations, trading price of our common stock and impairing our ability to satisfy our debt service obligations.our real estate acquisitions may result in disruptions to our business as a result of the burden in negotiating these acquisitions and in integrating operations placed on our management. our business strategy includes acquisitions and investments in real estate on an ongoing basis. these acquisitions may cause disruptions in our operations and divert managements attention from day-to-day operations, which could impair our relationships with our current tenants and employees. in addition, if we acquire real estate by acquiring another entity, we may be unable to effectively integrate the operations and personnel of the acquired business. in addition, we may be unable to train, retain and motivate any key personnel from the acquired business. if our management is unable to effectively implement our acquisition strategy, we may experience disruptions to our business. as a result of the limited time during which we have to perform due diligence of many of our acquired properties, we may become subject to significant unexpected liabilities and our properties may not meet projections. when we enter into an agreement to acquire a property or portfolio of properties, we often have limited time to complete our due diligence prior to acquiring the property. to the extent we underestimate or fail to investigate or identify risks and liabilities associated with the properties we acquire, we may incur unexpected liabilities or the property may fail to perform as we expected. if we do not accurately assess the liabilities associated with properties prior to their acquisition, we may pay a purchase price that exceeds the current fair value of the net identifiable assets of the acquired property. as a result, material goodwill and other intangible assets would be required to be recorded, which could result in significant accounting charges in future periods. these charges, in addition to the financial impact of significant liabilities that we may assume, could adversely impact our revenue and profitability, causing a significant downturn in our financial condition, results of operations, trading price of our common stock and impairing our ability to satisfy our debt service obligations.we have a near-term expectation of significant growth, and we may not be able to adapt our management and operational systems to respond to this growth, including the acquisition and integration of additional properties without unanticipated disruption or expense. in order to achieve desired and planned business growth, we intend to significantly expand our asset and property management activities, and acquire a significant number of properties in the next 12 to 24 months. with the expected growth of our portfolio, we cannot assure you that we will be able to adapt our management, administrative, accounting and operational systems, or hire and retain suff | 1 | < 0.1% | |
| RISK FACTORS This Prospectus contains forward-looking statements that involve risks and uncertainties. Actual results could differ materially from those discussed in the forward-looking statements as a result of certain factors, including those set forth below and elsewhere in this Prospectus. The following risk factors should be considered carefully in addition to the other information in this Prospectus before purchasing the shares of Common Stock offered hereby.RAPID TECHNOLOGICAL CHANGE. The microwave test and measurement industry is characterized by rapid technological change. The Company's future success will depend upon its ability continually to enhance its current products and to develop and introduce new products that keep pace with the increasingly sophisticated needs of its customers and the technological advancements of its competitors. There can be no assurance that the Company will be successful in developing and marketing product enhancements or new products that will adequately meet the requirements of the marketplace. See "Business -- Systems and Products" and "Business-- Research and Development."DEPENDENCE ON PROPRIETARY TECHNOLOGY. The Company's success is heavily dependent upon its proprietary technology. The Company does not currently have any material patents and relies principally on trade secret and copyright laws to protect its technology. However, there can be no assurance that these steps will prevent misappropriation of its technology. Moreover, third parties could independently develop technologies that compete with the Company's technologies. Although the Company believes that its products and proprietary rights do not infringe patents and proprietary rights of third parties, there can be no assurance that infringement claims, regardless of merit, will not be asserted against the Company. In addition, effective copyright and trade secret protection of the Company's proprietary technology may be unavailable or limited in certain foreign countries. See "Business -- Proprietary Rights."RISKS ASSOCIATED WITH ACQUISITIONS. In the normal course of business, the Company evaluates potential acquisitions that would complement or expand its business. Subject to the completion of this offering, the Company will acquire AEMI. There can be no assurance that the Company will be able to successfully integrate the business and operations of AEMI or any other business acquired in the future. There can be no assurance that the Company will not incur disruptions and unexpected expenses in integrating such acquisitions. In attempting to make acquisitions, the Company often competes with other potential acquirors, many of which have greater financial and operational resources. Furthermore, the process of evaluating, negotiating, financing and integrating acquisitions may divert management time and resources. There can be no assurance that any acquisition, when consummated, will not materially adversely affect the Company's business, operating results or financial condition. See "Business -- The ORBIT/FR Strategy" and "Management's Discussion and Analysis of Financial Condition and Results of Operations."DEPENDENCE ON ALCHUT; OPERATIONS IN ISRAEL. The Company maintains and will continue to maintain a number of relationships with Alchut, the sole stockholder of the Company prior to this offering. All of the Company's electro-mechanical production requirements, primarily in connection with the production of positioners, are currently subcontracted to Alchut. The amounts paid by the Company to Alchut for its subcontracted production during 1994, 1995 and 1996 were $1.5 million, $1.4 million and $1.5 million, which represented 28%, 26% and 23% of the Company's cost of revenues, respectively. In addition, Alchut provides general and administrative services for the Company's operations in Israel. Effective January 1, 1997, the Company and Alchut entered into an agreement under which Alchut will continue to provide these services for at least one year. See "Certain Transactions." Alchut maintains its production operations, and the Company maintains part of its engineering operations, in Israel. As a result, the Company may be directly influenced by the political, economic and military conditions affecting Israel. Such conditions may create production delays or stoppages which could adversely affect the Company's ability to conduct operations.RISKS OF FIXED-PRICE CONTRACTS. Virtually all of the Company's contracts for its systems and products are on a fixed-price basis. The profitability of such contracts is subject to inherent uncertainties as to the cost of 6 completion. In addition to possible errors or omissions in making initial estimates, cost overruns may be incurred as a result of unforeseen obstacles, including both physical conditions and unexpected problems in engineering, design or testing. Since the Company's business may at certain times be concentrated in a limited number of large contracts, a significant cost overrun on any one contract could have a material adverse effect on the Company's business, operating results and financial condition.RISKS ASSOCIATED WITH ENTERING NEW MARKETS. The Company has identified and is evaluating whether to enter into certain complementary markets and may use a portion of the proceeds of this offering to expand into these markets. The Company's success in these markets will depend on, among other factors, the Company's ability to identify markets and develop technologies for such markets on a timely basis, hire and retain skilled management, financial, marketing and engineering personnel, successfully manage growth and obtain capital sufficient to finance such expansion. There can be no assurance that the Company will successfully enter these markets. See "Use of Proceeds" and "Business -- The ORBIT/FR Strategy."MANAGEMENT OF GROWTH. The Company is currently experiencing a period of rapid growth in the number of employees and in the scope of its business. In addition, the Company believes that continued growth will be required to maintain the Company's competitive position. The Company's rapid growth, coupled with the rapid evolution of the Company's markets, has placed, and is likely to continue to place, strains on its management, administrative, operating and financial resources, as well as increased demands on its internal systems, procedures and controls. For example, as the Company further expands, existing management will be required to supervise more wide-spread and diversified operations and additional management personnel will have to be hired and trained. The Company's ability to manage recent and future growth will require the Company to devote additional management time to its financial and management controls, reporting systems and procedures and to expand, train, motivate and manage its sales and technical personnel. There can be no assurance that the Company will be able to manage its growth successfully. Failure to do so could have a material adverse effect on the Company's business, operating results and financial condition.RISKS ASSOCIATED WITH INTERNATIONAL SALES. In 1996, international sales comprised approximately 52% of the Company's total sales, and the Company expects its international business to continue to account for a material part of its revenues. International sales are subject to numerous risks, including political and economic instability in foreign markets, restrictive trade policies of foreign governments, inconsistent product regulation by foreign agencies or governments, imposition of product tariffs and burdens and costs of complying with a wide variety of international and U.S. export laws and regulatory requirements. There can be no assurance that the Company will be able to continue to compete successfully in international markets or that its international sales will be profitable. Approximately 92% of the Company's revenues in 1996 were denominated in U.S. dollars, and the Company intends to continue to enter into U.S. dollar-denominated contracts. Accordingly, the Company believes that it does not have significant exposure to fluctuations in currency. However, fluctuations in currency could adversely affect the Company's customers. See "Business -- The ORBIT/FR Strategy."POTENTIAL FLUCTUATIONS IN QUARTERLY RESULTS. The Company's operating results have varied from quarter to quarter in the past and may vary significantly in the future depending on factors such as the size and timing of significant contracts, the mix of third party products and the Company's proprietary products included in a particular contract, customers' budgetary constraints, increased competition, the timing of new product announcements and changes in pricing policies by the Company or its competitors, market acceptance of new and enhanced versions of the Company's products, changes in operating expenses and changes in general economic factors. During the five quarters ended March 31, 1997, the Company's revenues were $1.5 million, $1.8 million, $2.8 million, $4.2 million and $4.9 million, respectively, and the Company's net income was $27,000, $50,000, $193,000, $561,000 and $586,000, respectively. The Company's expense levels are based, in part, on its expectations as to future revenue levels. If the Company's revenue levels were to be below expectations, the Company's operating results would likely be materially adversely affected. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Quarterly Results of Operations."DEPENDENCE ON QUALIFIED TECHNICAL PERSONNEL. The Company's operating results depend in large part upon the efforts of its microwave, software and systems engineers. The success of the Company's business therefore 7 depends on its ability to attract and retain engineers and other technical personnel. There are a limited number of microwave engineers, and such individuals are sought both by microwave test and measurement companies such as the Company and by manufacturers of wireless products and telecommunications service providers. Competition for such personnel is intense. The Company has at times experienced difficulty in recruiting and retaining technical personnel, and there can be no assurance that the Company will not experience difficulties in the future in attracting and in retaining technical personnel. See "Business -- Employees."DEPENDENCE ON KEY PERSONNEL. The success of the Company depends to a significant degree upon the contribution of its executive officers and other key personnel, including Mr. Aryeh Trabelsi, the Company's President and Chief Executive Officer. Other than Mr. Trabelsi, none of the Company's executive officers has an employment agreement with the Company, except that Mr. Moshe Pinkasy has an agreement that is terminable upon 90 days notice. There can be no assurance that the Company will be able to retain its managerial and other key personnel or to attract additional managerial and other key personnel if required. See "Business -- Employees" and "Management."PRODUCT LIABILITY; RISK OF PRODUCT DEFECTS. The sale of products and systems by the Company may entail the risk of product liability and related claims. A product liability claim brought against the Company could have a material adverse effect upon the Company's business, operating results and financial condition. Complex software and system products, such as those offered by the Company, may contain defects or failures when introduced or when new versions are released. There can be no assurance that, despite testing by the Company, errors will not be found in new products after commencement of commercial shipments, resulting in loss of market share or failure to achieve market acceptance. The Company maintains product liability insurance in the amount of $3.0 million and errors and omissions insurance in the amount of $1.0 million, although there can be no assurance that such coverage will be applicable to a particular claim or that the amounts of such insurance will be adequate if the Company experiences a significant claim. Although the Company has not experienced any significant claims to date related to its systems or products, the occurrence of such a claim could have a material adverse effect upon the Company's business, operating results and financial condition.COMPETITION. The market for automated microwave test and measurement products, systems and services is highly competitive and is characterized by continuing advances in products and technologies. In general, competition in this market comes from major microwave test and measurement vendors, some of which have a longer operating history, significantly greater financial, technical and marketing resources, greater name recognition and a larger installed customer base than the Company. These companies also have established relationships with current and potential customers of the Company. The Company also competes, on a limited basis, with the internal development groups of its existing and potential customers, who may design and develop parts of their own microwave test and measurement systems. The Company's business, operating results and financial condition could be materially adversely affected by such competition. See "Business -- Competition."FLUCTUATIONS IN CAPITAL SPENDING. The Company is dependent upon the wireless communications, satellite, automotive and aerospace/defense industries. Because these industries are characterized by technological change, pricing and gross margin pressure and, particularly in the aerospace/defense industry, government budget constraints, they have from time to time experienced sudden economic downturns. During these periods, capital spending is frequently curtailed and the number of design projects often decreases. Since the Company's sales are dependent upon capital spending trends and new design projects, negative factors affecting these industries could have a material adverse effect on the Company's business, operating results and financial condition.CONTROL BY PRINCIPAL STOCKHOLDER. Upon completion of this offering, Alchut will beneficially own 65.6% of the outstanding Common Stock of the Company (60.7% if the Underwriters' over-allotment option is exercised in full). Mr. Joseph Aviv, Chairman of the Board of the Company, and Mr. Zeev Stein, a director of the Company, and their families currently own approximately 44.0% and 42.0% of the outstanding shares of Alchut, respectively. As a result, these individuals and Alchut will be in a position to control the outcome of all matters requiring stockholder approval, including the election or removal of directors, approval of significant corporate transactions and the ability generally to direct the Company's affairs. Such concentration of ownership may have the effect of delaying or preventing a change in control of the Company, including transactions in which the 8 holders of the Company's Common Stock might otherwise receive a premium over current market prices for their shares. See "Principal Stockholders."DISCRETIONARY USE OF PROCEEDS. The Company intends to use the proceeds of this offering to pay up to $800,000 in connection with the AEMI acquisition and for working capital and other general corporate purposes, including possible acquisitions. Accordingly, the Company's management will have broad discretion with respect to the use of the net proceeds of this offering. See "Use of Proceeds."NO PRIOR TRADING MARKET FOR COMMON STOCK; POTENTIAL VOLATILITY OF STOCK PRICE. Prior to this offering, there has been no public market for the Common Stock, and there can be no assurance that an active trading market will develop or be sustained after this offering. The initial public offering price was determined through negotiations between the Company and the Representatives of the Underwriters based on several factors and may not be indicative of the market price of the Common Stock after this offering. See "Underwriting." The market price of the shares of Common Stock may be significantly affected by factors such as actual or anticipated fluctuations in the Company's operating results, announcements of technological innovations, new products or new contracts by the Company or its competitors, developments with respect to copyrights or proprietary rights, conditions and trends in the microwave test and measurement industry, adoption of new accounting standards affecting the software industry, general market conditions and other factors. In addition, the stock market has, from time to time experienced significant price and volume fluctuations that have particularly affected the market prices for the common stock of technology companies and that have often been unrelated to the operating performance of particular companies.DILUTION. The initial public offering price is substantially higher than the pro forma net tangible book value per share of Common Stock. Investors purchasing shares of Common Stock in this offering at the Offering Price will therefore incur immediate and substantial dilution of $5.49 in pro forma net tangible book value per share. See "Dilution."NO DIVIDENDS. The Company has never paid cash dividends on its Common Stock and does not anticipate that any cash dividends will be declared or paid in the foreseeable future. See "Dividend Policy." SHARES ELIGIBLE FOR FUTURE SALE. Sales of substantial amounts of Common Stock in the public market after this offering may have an adverse effect on the market price of the Common Stock. Upon completion of this offering, the Company will have outstanding 6,096,970 shares of Common Stock assuming the maximum of 96,970 shares are issued in connection with the acquisition of AEMI. Of these shares, 2,000,000 shares sold in this offering generally will be freely transferable without restriction. The remaining 4,096,970 shares, 4,000,000 of which are owned by Alchut and a maximum of 96,970 of which will be issued in connection with the acquisition of AEMI, may not be sold unless registered under the Securities Act of 1933, as amended (the "Securities Act"), or an exemption from registration is available, including the exemption provided by Rule 144 under the Securities Act. Alchut and the Company's directors and executive officers have agreed that they will not, other than by Alchut with respect to the over-allotment option, directly or indirectly, offer, sell, contract to sell, pledge, grant any option for the sale of or otherwise dispose of any shares of Common Stock or any securities convertible into, or exercisable or exchangeable for, any shares of Common Stock for a period of 180 days after the date of this Prospectus without the prior written consent of the Representatives of the Underwriters, other than in certain private transactions in which each transferee acquiring an interest in such Common Stock during such 180-day period agrees in writing to be bound by such agreement. After such 180-day period, the 4,000,000 shares of Common Stock held by Alchut will be eligible for sale in the public market in reliance upon Rule 144 subject to the restrictions contained therein. The current stockholders of AEMI have agreed with the Company that they will not offer, sell or otherwise dispose of the maximum of 96,970 shares of Common Stock issued in connection with the acquisition of AEMI for a period of two years after the closing date of such acquisition. After such two-year period, the maximum of 96,970 shares held by such stockholders will be eligible for sale under Rule 144 subject to the restrictions contained therein. After 180 days from the date of this Prospectus, the Company intends to register under the Securities Act 800,000 shares of Common Stock reserved for awards under the Company's 1997 Equity Incentive Plan. See "Underwriting" and "Shares Eligible for Future Sale." 9ISSUANCE OF PREFERRED STOCK AND COMMON STOCK; ANTI-TAKEOVER PROVISIONS. Pursuant to its Amended and Restated Certificate of Incorporation, the Company has an authorized class of 2,000,000 shares of Preferred Stock which may be issued by the Board of Directors with such terms and such rights, preferences and designations as the Board may determine and without any vote of the stockholders, unless otherwise required by law. Issuance of such Preferred Stock, depending upon the rights, preferences and designations thereof, may have the effect of delaying, deterring or preventing a change in control of the Company. Issuance of additional shares Common Stock could result in dilution of the voting power of the Common Stock purchased in this offering. In addition, certain "anti-takeover" provisions of the Delaware General Corporation Law (the "DGCL") among other things, may restrict the ability of the stockholders to approve a merger or business combination or obtain control of the Company. See "Description of Securities." 10 | 1 | < 0.1% | |
| RISK FACTORS This offering involves a high degree of risk. You should carefully consider the risks and uncertainties described below and the other information in this prospectus before deciding whether to invest in shares of our common stock. Fluctuations in our quarterly operating results could cause our stock price to declineFuture operating results are likely to fluctuate significantly from quarter to quarter. Factors that could affect our quarterly operating results include: . delays or difficulties in introducing new products; . increasing expenses without commensurate revenue increases; . variations in the mix of products sold; . variations in the timing or size of orders from our customers; . delayed deliveries from suppliers; and . price decreases and other actions by our competitorsOur quarterly operating results are also likely to fluctuate due to seasonal factors. Some of our vertical markets, such as the U.S. government and educational and retail buyers, follow seasonal buying patterns and do not make substantial purchases during the quarter ending January 31. Thus, revenues in the quarter ending January 31 are often lower than in the previous quarterBecause of these and other factors, our operating results may not meet expectations in some future quarters, which could cause our stock price to decline. We may not successfully introduce new products that are planned for the near future which could harm our business and financial condition We plan to introduce new products in the near future to serve the evolving contact center and e-commerce markets. These new products must achieve market acceptance, maintain technological competitiveness and meet increasing customer requirements. New products may require long development and testing periods. Significant delays in the development, release, installation or implementation of new products could harm our business and financial condition. Planned increases in operating expenses to develop and sell new products may result in operating lossesWe intend to increase our operating expenses substantially, particularly expenses related to research and development, sales and marketing, and development of new distribution channels. We will need to generate significant additional revenue to remain profitable. If we incur losses, our stock price could decline. Our next-generation Linux communications servers and software face intense competition from many companies that have targeted our marketsThe competitive arena for our products is changing very rapidly and we face intense competition in our markets. Well-established companies and many emerging companies are scrambling to 5 develop products to improve customer service in e-commerce. While the industry remains fragmented, it is rapidly moving toward consolidation, driven by both emerging companies' desires to expand product offerings and resources and established companies' attempts to acquire new technology and reach new market segments. A number of emerging companies have completed initial public offerings in recent months, while many more remain private. Most established competitors, as well as those emerging companies that have completed initial public offerings, currently have greater resources and market presence than we do. In addition, a number of our current and potential competitors have recently been acquired by larger companies who seek to enter our marketsWe expect competition to intensify as competitors develop new products, competitors gain additional financial resources from public offerings, new competitors enter the market, and companies with complementary products enter into strategic alliances Our current and potential competitors can be grouped into the following five categories: . data communications equipment suppliers, such as Cisco Systems, 3Com and Sun Microsystems; . web center software and services suppliers, such as eGain, Kana Communications, Mustang.com and WebLine Communications (announced acquisition by Cisco); . contact center software and services suppliers, such as Clarify (announced acquisition by Nortel), Genesys Telecommunications Laboratories (announced acquisition by Alcatel), Interactive Intelligence, Silknet Software and Vantive (announced acquisition by PeopleSoft); . emerging private communications exchange (PCX) suppliers, such as AltiGen Communications, Artisoft, Picazo Communications, NBX Corporation (acquired by 3Com), Selsius Systems (acquired by Cisco), and Calista (announced acquisition by Cisco); and . voice communications equipment suppliers, such as Alcatel, Aspect Communications, Lucent Technologies, Mitel, NEC, Nortel Networks, Rockwell Electronic Commerce and SiemensMany of our current and potential competitors have significantly greater financial, technical, marketing, customer service and other resources, greater name and brand recognition and a larger installed customer base than we do. Therefore, our competitors may be able to respond to new or emerging technologies and changes faster than we can. They may also be able to devote greater resources to the development, promotion and sale of their products. Actions by our competitors could result in price reductions, reduced margins and loss of market share, any of which would damage our business. We cannot assure you that we will be able to compete successfully against these competitors. Our principal competitors and the competitive nature of our market are discussed in greater detail in "Business--Competition." If we are unable to increase our sales capability, we may not be able to grow or sustain our businessWe must expand our sales force in order to increase our revenues. If we fail to do so, our business, operating results and financial condition could be harmed. We must recruit, train and retain additional direct sales personnel. It may take a new sales person months to become a productive member of our direct sales force, if ever. New sales personnel, dealers and value added resellers might not be effective in increasing sales. 6 If we cannot develop a new indirect sales channel to sell our eNterprise communications servers our ability to generate revenue would be harmedWe sell our eQueue 4000 communications servers directly. We intend to sell our eNterprise 2000 and eNterprise 200 communications servers both directly and indirectly through dealers and value added resellers that have experience in data communications as well as voice. We may not be able to develop this new indirect sales channel. In addition, these new distribution partners may devote fewer resources to marketing and supporting our products than to our competitors' products and could discontinue selling our products at any time in favor of our competitors' products or for any other reason. The lengthy sales cycles of some of our products, and the difficulty in predicting the timing of our sales may cause fluctuations in our quarterly operating resultsThe uncertainty of our sales cycle makes the timing of sales difficult to predict and may cause fluctuations in our quarterly operating results. Our sales cycles generally vary from four to twelve months for our large capacity Linux communications servers, from one to six months for our Millennium switching platform and are expected to be from one to six months for our small to mid-range Linux communications servers. The purchase of our products may involve a significant commitment of our customers' time, personnel, financial and other resources. We generally recognize revenues on the date of shipment for Millennium and eNterprise systems and upon acceptance for our eQueue 4000 due to the customized nature of these installations. Also, it is difficult to predict the timing of indirect sales because we have little control over the selling activities of our dealers and value added resellersWe incur substantial sales and marketing expenses and spend significant management time before customers place orders with us, if at all. Revenues from a specific customer may not be recognized in the quarter in which we incur related sales and marketing expense, which may cause us to miss our revenues or earnings expectations. If the acceptance of the Linux operating system does not continue, our ability to market our products could be adversely affectedOur next-generation communications servers run on the Linux operating system. Our products also incorporate application software developed specifically for the Linux operating system. Our ability to market our products could be adversely affected and we may incur significant development costs if: . the Linux operating system does not evolve to meet changing market needs; . new applications are not developed for the Linux operating system; or . other operating systems, such as Microsoft Windows NT, reduce the recent growing acceptance of LinuxIn addition, any other factor that reduces acceptance of the Linux operating system could also reduce acceptance of our products and harm our business, results of operations and financial condition. Our products must respond to rapidly changing market needs and integrate with changing protocols to remain competitive The markets for our products are characterized by rapid technological change, frequent new product introductions, uncertain product life cycles and changing customer requirements. If we are 7 not able to rapidly and efficiently develop new products and improve existing products to meet the changing needs of our customers and to adopt changing communications standards our business, operating results and financial condition would be harmedKey features of our products include integration with standard protocols, computer telephony integration and automatic call distribution applications and protocols, operating systems and databases. If our products cannot be integrated with third-party technologies or if they do not respond to changing market needs, we could be required to redesign our products. Redesigning any of our products may require significant resources and could harm our business, operating results and financial condition. If we are not be able to grow or sustain our Millennium voice switching platform revenues, our business, operating results and financial condition could be harmedWe derived approximately 40% of our total pro forma revenues for fiscal year 1999 from the sale of our Millennium products. We may not be able to grow or sustain our Millennium revenues because growth of the traditional private branch exchange (PBX) market, which accounts for a substantial portion of our Millennium revenues, is expected to slow. One reason for the slowing growth rate of the traditional PBX market is the emergence of voice switching platforms based on standard PCs. If we are not able to grow or sustain our Millennium voice switching platform revenues, our business, operating results and financial condition could be harmed. The emergence of these products is discussed under "Business--Competition--Emerging PCX Suppliers."In addition, approximately half of Millennium revenues are derived from dealers and value added resellers who have no obligation to sell our products. Therefore, dealers and value added resellers could discontinue selling our products at any time in favor of our competitors' products or for any other reason. A reduction or loss of orders from our dealers and value added resellers could harm our business, operating results and financial condition. Unanticipated difficulties in integrating our recent acquisition of BCS could harm our businessWe have a limited combined operating history because we only recently acquired BCS. Unanticipated difficulties or delays may arise as we integrate sales, marketing and product development. Failure to integrate BCS could harm our business, operating results and financial condition. Delayed deliveries of components from our single source suppliers or third- party manufacturers could reduce our revenues or increase our costsWe depend on sole source suppliers for certain components, digital signal processors and chip sets, voice processor boards, wireless handsets and base stations. Interruptions in the availability of components from our key suppliers could result in delays or reductions in product shipments, which could damage our customer relationships and harm our operating results. Finding alternate suppliers or modifying product designs to use alternative components may cause delays and expenses. Further, a significant increase in the price of one or more third-party components or subassemblies could reduce our gross profitWe depend upon our primary contract manufacturers, CMC Industries, Inc., a wholly-owned subsidiary of ACT Manufacturing, Inc., and Pensar Corporation. We may not be able to deliver our products on a timely basis if CMC or Pensar fails to manufacture our products and deliver them to us on time. In addition, it could be difficult to engage other manufacturers to build our products. Our business, results of operations and financial condition could be harmed by any delivery delays. 8 We may be unable to hire and retain engineering and sales and marketing personnel necessary to execute our business strategyWe intend to substantially increase our engineering and sales and marketing personnel over the next twelve months. Competition for highly qualified personnel is intense due to the limited number of people available with the necessary technical skills, and we may not be able to attract, assimilate or retain such personnel. If we cannot attract, hire and retain sufficient qualified personnel, we may not be able to successfully develop, market and sell new products. Our business could be harmed if we lose principal members of our management teamWe are highly dependent on the continued service of our management team. The loss of any key manager may substantially disrupt our business and could harm our business, results of operations and financial condition. In addition, replacing management personnel could be costly and time consuming. We are effectively controlled by our principal stockholders and management, which may limit your ability to influence stockholder mattersUpon completion of this offering, our executive officers, directors and principal stockholders and their affiliates will own 5,109,281 shares, or 43.1%, of the outstanding shares of common stock, or 4,959,281 shares, or 40.5%, if the underwriters' over-allotment option is exercised in full. Thus, they will effectively control us and direct our affairs, including the election of directors and approval of significant corporate transactions. This concentration of ownership may have the effect of delaying, deferring or preventing a change in control of our company and some transactions may be more difficult or impossible without the support of these stockholders. The interests of these stockholders may conflict with those of other stockholders. We also conduct transactions with businesses in which our principal stockholders maintain interests, such as CMC. We believe that these transactions have been conducted on an arm's length basis, but we cannot assure you that these transactions would have the same terms if conducted with unrelated third parties. Our management may use the offering proceeds in ways that our stockholders may not deem desirableA significant portion of the net proceeds of the offering are not allocated for specific uses. Our management has broad discretion over the use of the net proceeds from this offering and may use them in ways that our stockholders may not deem desirable. In addition, we cannot predict that the proceeds will be invested to yield a significant return, if any. See "Use of Proceeds." We may not be able to protect our intellectual property, and any intellectual property litigation could be expensive and time consumingOur business and competitive position could be harmed if we fail to adequately protect our intellectual property. Although we have filed patent applications, we are not certain that our patent applications will result in the issuance of patents, or that any patents issued will provide commercially significant protection to our technology. In addition, as we grow and gain brand recognition, our products are more likely to be subjected to infringement litigation. We could incur substantial costs and may have to divert management and technical resources in order to respond to, defend against, or bring claims related to our intellectual property rights. In addition, we rely on a 9 combination of patent, trademark, copyright and trade secret laws and contractual restrictions to establish and protect our proprietary rights. These statutory and contractual arrangements may not provide sufficient protection to prevent misappropriation of our technology or to deter independent third-party development of similar technologies. Any litigation could result in our expenditure of funds, management time and resources. Our products may have undetected faults leading to liability claims, which could harm our businessOur products may contain undetected faults or failures. Any failures of our products could result in significant losses to our customers, particularly in mission-critical applications. A failure could also result in product returns and the loss of, or delay in, market acceptance of our products. In addition, any failure of our products could result in claims against us. Our purchase agreements with our customers typically contain provisions designed to limit our exposure to potential product liability claims. However, the limitation of liability provisions contained in our purchase agreements may not be effective as a result of federal, state or local laws or ordinances or unfavorable judicial decisions in the United States or other countries. We maintain insurance to protect against certain claims associated with the use of our products, but our insurance coverage may not adequately cover all possible claims asserted against us. In addition, even claims that ultimately are unsuccessful could be expensive to defend and consume management time and resources. This is our initial public offering and our stock price may be volatilePrior to this offering, there has been no public market for our common stock. The initial public offering price will be determined by negotiations among the underwriters, the selling stockholders and us and may not be indicative of the market price for the common stock after this offering. We do not know the extent to which investor interest will lead to the development of a public market. You may not be able to resell the common stock at or above the initial public offering price. Many factors could cause the market price of the common stock after this offering to fluctuate substantially, including future announcements concerning us or our competitors, variations in operating results, loss of key customers, changes in pricing policies, or changes in earnings estimates by analysts. General economic, political and market conditions may also decrease the price of our common stock. Our charter contains certain anti-takeover provisions that may discourage take- over attempts and may reduce our stock priceOur board of directors has the authority to issue up to 10,000,000 shares of preferred stock and to determine the preferences, rights and privileges of those shares without any further vote or action by the stockholders. The rights of the holders of common stock may be harmed by the rights of the holders of any preferred stock that may be issued in the future. Certain provisions of our certificate of incorporation and bylaws may make it more difficult for a third party to acquire control of us without the consent of our board of directors, even if such changes were favored by a majority of the stockholders. These include provisions that provide for a staggered board of directors, prohibit stockholders from taking action by written consent and restrict the ability of stockholders to call special meetings. Our business may be disrupted if we have year 2000 problems in our systems or the systems of our key suppliers, manufacturers or customersWe depend heavily upon the ability of our own computer or data-dependent systems to correctly interpret century data. This includes, but is not limited to, our systems in information, business, 10 finance, operations and service. Any failure or malfunctioning on the part of these or other systems could harm us in ways that are not currently known, discernible, quantifiable or otherwise anticipated by us. We currently have only limited information on the year 2000 compliance of our key suppliers, manufacturers and customers. Our business and operating results could be harmed if our key suppliers or manufacturers were to experience year 2000 issues that cause them to delay production or shipment of key components or systems. In addition, our operating results could be damaged if any of our key customers encounter year 2000 issues that cause them to delay or cancel substantial purchase orders or delivery of our product. For a discussion of our year 2000 plans, see "Management's Discussion and Analysis of Financial Condition and Results of Operations--Year 2000 Compliance." Future sales of shares may decrease our stock priceSales of substantial amounts of our common stock in the public market after this offering, including shares issued upon the exercise of outstanding options, or the perception that such sales could occur, could reduce the market price of our common stock. These sales also might make it more difficult for us to raise funds through future offerings of common stockUpon completion of this offering, we will have outstanding 11,864,826 shares of common stock. All of the shares sold in this offering will be freely transferable without restriction or further registration under the Securities Act of 1933, except for shares purchased by our "affiliates," as defined in Rule 144 under the Securities Act. The remaining 8,264,826 shares of common stock that will be outstanding upon completion of this offering are "restricted securities" as defined in Rule 144. These restricted securities may be sold in the future without registration under the Securities Act to the extent permitted under Rule 144, Rule 701, or another exemption under the Securities Act. eOn, our officers, directors and stockholders holding approximately 8,062,906 shares of common stock will agree not to, without the prior written consent of Needham & Company, Inc., directly or indirectly sell, offer, contract to sell, transfer the economic risk of ownership in, make any short sale, pledge or otherwise dispose of any shares of common stock or any securities convertible into, or exchangeable, or exercisable for, or any other rights to purchase or acquire shares of common stock owned by them during the 180-day period commencing on the date of this prospectus. We may have a contingent liability arising out of a possible violation of section 5 of the Securities Act in connection with the posting of materials on an underwriter's websitePrior to January 10, 2000, a copy of the registration statement for this offering was posted on the website of W.R. Hambrecht + Co., Inc., an underwriter of this offering, which included a prospectus that did not contain preliminary pricing information as required by Section 10 of the Securities Act. We urge all persons to read and base their investment decision only on the preliminary prospectus dated January 10, 2000, which contained the preliminary pricing information, and the final prospectusIf this posting did constitute a violation of the Securities Act, then any purchasers in this offering who viewed this posting would have the right, for a period of one year from the date of their purchase of the common stock, to bring an action for rescission or for damages resulting from their purchase of common stock. We believe that any exposure we may have will not be material. 11 | 1 | < 0.1% | |
| RISK FACTORS An investment in our common stock involves a high degree of risk. You should carefully consider the following information about these risks together with other information contained in this prospectus, before you decide to purchase our common stock. Many factors could cause the market price of our common stock to fluctuate substantially. These fluctuations, as well as general economic and market conditions, may have a material adverse effect on the market price of our stock. If any of the following risks actually occur, our business would likely suffer. In such case, the trading price of our common stock could decline, and you may lose all or part of the money you paid to buy our common stockThis prospectus contains forward-looking statements that involve risks and uncertainties. Many factors, including those described below, may cause actual results to differ materially from our anticipated results. Risks Related to Competition and Market Acceptance of BeOS The market for Internet appliances may not evolve and we may not be able to compete effectively in this marketOur business and prospects depend on the development and market acceptance of Internet appliances and our ability to successfully market BeOS as a viable operating system for Internet appliances. The market for Internet appliances is new, unproven and subject to rapid technological change. This market may never develop or may develop at a slower rate than we anticipate. In addition, our success in marketing BeOS as a platform for Internet appliances is dependent upon developing and maintaining relationships with industry-leading computer and consumer electronics manufacturers, Internet service providers and content creators. There is already intense competition to offer non-PC devices that provide access to the Internet and enable digital media content on the Internet. Companies such as Microsoft Corporation, Oracle Corporation, Apple Computer, Inc. and Spyglass, Inc. have operating systems that are being used or may be used for Internet appliances. These companies have an established market presence, relationships with computer and consumer electronic manufacturers who will develop and market Internet appliances, and have significantly greater financial, marketing and technical resources than we do. These companies, together with a large number of smaller companies who offer operating systems that may be used for Internet appliances, may capture a larger portion of the market than we do. Our failure to establish relationships with other companies that offer Internet appliances and establish BeOS in this market would have a material adverse effect on our business and prospects. We have only one product that may never gain broad market acceptanceBeOS is our only product and we will derive all of our revenue for the foreseeable future from sales of BeOS. To date, BeOS has been used primarily by a limited number of enthusiasts and application developers. Our business and prospects are highly dependent on the broader market acceptance of BeOS as a viable platform for a wide variety of applications and devices enabling digital media and Internet-based applications. The ability of BeOS to gain broad support from developers, enthusiasts and OEMs is unproven. BeOS may never gain broad market acceptance among consumers and OEMs. At present, a large base of commercially available software developed for use on BeOS does not exist. Consumers and OEMs may not perceive any significant advantages over traditional operating systems such as Microsoft Windows, Apple's Mac OS or the UNIX-based operating systems. In addition, we may be unable to demonstrate the commercial viability and cost-effective nature of BeOS. We may also be unsuccessful at marketing BeOS as the operating system of choice among professional users, consumers or applications developers. As a result, potential customers may not purchase BeOS and OEMs may not elect to incorporate BeOS in their products. If BeOS is not accepted or adopted by an increasing number of developers and OEMs, our business and prospects will be materially adversely affected. 8Traditional or new operating systems could evolve to more effectively address the digital media requirements of users and OEMs. For example, enhancements and features could be added to Microsoft's Windows operating system and Apple's Mac OS which could significantly decrease the differences between BeOS and these operating systems. As a result, any technical or marketing advantage we may have had in the market for operating systems could be lost and the demand and acceptance of BeOS would diminish. We face intense competition from companies with significantly greater financial, marketing, and technical resourcesThe market for computer operating systems is intensely competitive. This market is dominated by one company, Microsoft Corporation, which has significantly greater brand recognition, market presence and financial, marketing and distribution resources than we do. Other companies that offer competing operating systems include Apple Computer, Inc., IBM, Oracle Corporation, Sony Corporation and a number of companies that offer versions of the UNIX operating system, including SGI, the Hewlett-Packard Company and Sun Microsystems. In addition, we face competition from a number of smaller companies developing and marketing UNIX-based operating systems such as Linux. Many of our current and potential competitors have longer operating histories, a larger customer base, a greater number of applications, greater brand recognition, and greater financial, technical, marketing and distribution resources than we do. As a result, we may have difficulty increasing the number of BeOS users and attracting OEMs and third party developers to create devices and software that will use BeOS. See "Business-Competition." Risks Related to our Business and Operations Our success depends on our ability to establish and maintain strategic relationships, and the loss of any of our strategic relationships could harm our business and have an adverse impact on our revenueOur success in increasing the number of BeOS users, particularly in the Internet appliance market, depends in large part on our ability to establish and maintain strategic relationships with industry-leading computer and consumer electronic manufacturers and Internet service and content providers. We have entered into agreements with one OEM and a number of resellers and distribution partners. We presently do not have agreements with any US-based OEM. We cannot be certain that we will be able to reach agreements with additional partners on a timely basis or at all, or that these partners will devote adequate resources to promote BeOS. We may be unable to enter into new agreements with additional partners on terms favorable to us or at all. If we are unable to develop or maintain relationships with OEMs, we will have difficulty selling and gaining market acceptance for BeOS and our business and results of operations will be materially adversely affected. Sales to one customer accounted for a significant portion of our net revenues, the loss of this customer could adversely impact our net revenuesSales to Plat'Home Co. Ltd., our Japanese distributor, accounted for approximately 23% of our net revenues for the three months ended March 31, 1999 and approximately 37% of our net revenues for 1998. The loss of Plat'Home or any key reseller or distributor in the future or failure to enter into new agreements at commercially reasonable terms, if at all, with key resellers and distributors could adversely affect our revenues and results of operations. Our success depends upon availability of third party applications that operate on BeOSDemand and market acceptance for BeOS will significantly depend upon the availability of an increasing number of third party applications that operate on the BeOS platform. These applications include video and audio editing programs, 3D games, creative audio and video content development and manipulation, and personal productivity applications We intend to encourage the development of an increasing number of applications that operate on BeOS by attracting third party developers to the BeOS platform and by maintaining our existing developer relationships through marketing, technical support and financial incentives for third party developers. However, third party 9 developers are generally under no obligation to develop applications based on the BeOS platform. A developer's decision to write applications for BeOS is based in part on the perception and analysis of the relative technical, financial and other benefits of developing applications for the BeOS platform versus writing applications for more popular operating systems such as Microsoft's Windows or Apple's Mac OS. If we fail to attract a sufficient number of application developers who develop and market successful applications on BeOS, the demand for BeOS and our business will suffer. Moreover, any delay or unsuccessful release of third party applications could have a material adverse effect on our business and results of operations. We have limited experience marketing and selling our products, which makes it difficult to evaluate our businessWe were founded in 1990 and shipped our first commercial product in December 1998. Prior to 1998, our business was primarily focused on research and product development activities. To date, we have not generated any significant revenues from sales of BeOS and this makes it difficult to evaluate our business and prospects. Your evaluation of whether to purchase our common stock must be made in light of the risks and uncertainties frequently encountered by companies in an early stage of development and offering products in a market dominated by Microsoft. Risks faced in this regard include: . our inability to gain any sustainable level of market share or to compete with traditional operating systems such as Microsoft's Windows; . costs and delays in releasing new versions and product upgrades; and . our inability to manage or adapt to new and evolving trends in digital media and Internet appliancesWe may not successfully meet any of these challenges. Our failure to meet one or more of these challenges could materially adversely affect our business and prospects. It is also difficult to predict the size and future growth rate, if any, of the market for BeOS. We have limited experience upon which to determine or predict trends that may emerge and adversely affect our business or prospects. The market for BeOS may not develop or may develop more slowly than we anticipate, and may never become economically sustainable. Our revenues and operating results are subject to significant fluctuations and our stock price may fall if we fail to meet the expectations of the public marketOur revenues and operating results will likely vary significantly from period to period due to a number of factors, many of which are outside our control, such as new product releases and product enhancements by us and our competitors. Customer orders may be deferred in anticipation of new product releases, product enhancements or upgrades by us or by our competitors. In addition, changes in the pricing policies or marketing efforts of our competitor and our response to these changes, which could include price reductions or increased marketing efforts by us, may cause significant fluctuations in our revenues and operating results. Based on these factors, we may fail to meet the expectations of the public market in any given period and our stock price would likely be materially adversely affected. We may be unable to expand our sales and support organization to increase sales and market awareness for BeOSWe must expand our sales force and the number of resellers and distributors carrying BeOS domestically and internationally. Without this increase we may be unable to increase sales and market awareness of BeOS. To do this will require a significant increase in sales and marketing expenses which may not be offset by any corresponding increase in revenues. In addition, our sales and marketing efforts aimed at OEMs and Internet service and content providers require a sophisticated sales force and the commitment of significant financial resources on our part. We recently hired a senior sales and marketing executive and plan to hire additional sales and marketing personnel. Competition for qualified sales personnel is intense, especially those with an understanding of emerging Internet-based technologies and markets. We may not be able to hire the type and number of sales personnel that we require on a timely basis or at all. 10We will need to increase our staff to support new customers and the expanding needs of existing customers. Hiring customer service and support personnel is very competitive in our industry due to the limited number of people available with the necessary technical skills and understanding of operating systems and Internet-based applications. If we cannot hire adequate numbers of qualified sales, marketing and customer service personnel, our business could suffer materially. We are highly dependent on third party development toolsWe are highly dependent on development tools provided by a limited number of third party vendors. Development tools are software applications that assist programmers in the development of applications. Together with our application developers, we primarily rely upon software development tools provided by Cygnus Solutions and Perforce Software. If Cygnus or Perforce fail to support or maintain these development tools, we will either have to devote resources to maintain and support the tools ourselves or transition to another vendor. Any maintenance or support of the tools by us or the transition could be costly, time consuming, could delay our product release and upgrade schedule, and could delay the development and availability of third party applications used on BeOS. Failure to procure the needed software development tools or any delay in the availability of third party applications could negatively impact our ability and the ability of third party application developers to release and support BeOS and the applications that run on it. These factors could negatively and materially affect the acceptance and demand for BeOS, our business and prospects. We may be unable to adjust expenses in a timely manner to compensate for revenue shortfallsOur expense levels are fixed and based, in part, on our expectations of future sales. We may be unable to adjust spending in a timely manner to compensate for any sales shortfall. A significant portion of our expenses include minimum payments for licensed technology under licensing agreements, payment obligations under non-cancellable lease arrangements, rent and other payments that are fixed and do not vary with revenues. We plan to significantly increase our operating expenses to: . expand our sales and marketing efforts; . broaden our customer support capabilities; . expand our relationship with third party software developers; . develop new distribution channels; and . fund greater levels of research and developmentAny delay in generating revenue could cause significant variations in our operating results from quarter to quarter and could result in substantial operating losses. If we fail to generate sufficient sales or if our sales are below expectations, operating results are likely to be materially adversely affected. In our effort to increase market acceptance for BeOS, we may forego near-term revenue by providing BeOS at little or no cost to potential usersIn an attempt to increase the number of users and market acceptance of BeOS, we may choose to forego immediate revenue potential by providing BeOS at little or no cost. Users, therefore, may be unwilling to pay for any upgrades or new releases of BeOS. Our decision to forego near-term revenue in expectation of increasing the number of BeOS users may not yield market acceptance and future revenues. In addition, we may reduce prices in response to competitive factors or to pursue new market opportunities. We expect continued erosion in the average selling prices of our productsWe have experienced erosion in the average selling prices of our products due to a number of factors, including: . competitive pricing pressures; 11 . rapid technological changes; and . sales discounts We anticipate that the average selling prices of our products will fluctuate and decrease in the future in response to these factors. We also anticipate that the average selling price of our products will decrease as we market BeOS to Internet appliances and other low-cost device manufacturers. Therefore, to maintain or increase our gross margins, we must develop and introduce new products and product enhancements on a timely basis. We must also continually reduce our product costs. In addition, our average selling prices fluctuate based on changes in the percentage of revenues derived from the different sales channels used to sell our products. For example, the retail price for sales of BeOS is generally higher than the wholesale price used for sales to resellers, distributors and OEMs. As our average selling prices decline, we must increase our unit sales volume to maintain or increase our revenue. If our average selling prices decline more rapidly than our costs, our gross margins will decline, which could seriously harm our business and results of operations. We have incurred significant net losses and we may never achieve profitabilityWe incurred significant net losses of approximately $7.8 million in 1996, $10.4 million in 1997 and $16.9 million in 1998. As of March 31, 1999, we had an accumulated deficit of approximately $54.6 million. We expect to incur significant additional losses and continued negative cash flow from operations in 1999 and beyond and we may never become profitable. Due to our financial position as of December 31, 1998 and absent the raising of additional funds, our independent accountants have expressed substantial doubt regarding our ability to continue as a going concernWe expect to continue to incur significant sales and marketing, research and development and general and administrative expenses. We will need to generate significant revenues to achieve profitability and positive operating cash flows. Even if we do achieve profitability and positive operating cash flow, we may not be able to sustain or increase profitability or positive operating cash flow on a quarterly or annual basis. We will need to raise additional capital that may not be available to usWe currently believe that our existing capital resources, combined with the net proceeds of this offering, will be sufficient to meet our presently anticipated cash requirements for at least the next 12 months. However, we will need to raise additional capital and we cannot be certain that we will be able to obtain additional financing on favorable terms, if at all. If we cannot raise additional capital on acceptable terms, we may not be able to expand our sales and marketing efforts, further develop or enhance BeOS, take advantage of future opportunities or respond to competitive pressures or unanticipated requirements. Any of these events could have a material adverse effect on our business and results of operations. If additional capital is raised through the issuance of equity securities, your percentage ownership of the common stock will be reduced, you may experience dilution in net book value per share, or the new equity securities may have rights, preferences or privileges senior to those of the holders of our common stock. Any debt financing, if available, may involve covenants limiting, or restricting our operations or future opportunities. We face risks relating to our product returns and price reduction policiesWe provide most of our distributors and resellers with product return rights for stock balancing or limited product evaluation. Stock balancing rights permit distributors to return products to us for credit, subject to some limitations. We may experience significant returns in the future and our reserves may be inadequate to cover such returns. We also provide most of our distributors and resellers with price protection rights. Price protection rights require that we grant retroactive price adjustments for inventories of our products held by distributors or resellers if we lower our prices for these products. Product returns or price protection rights could have a material adverse effect on business and results of operations. 12We are dependent on the licensing of enabling technologies from third parties The demand and acceptance of our product is also dependent upon our ability to license key enabling technologies. We license from third parties compression and decompression algorithms known as "codecs" and communications protocols that facilitate the movement of rich media data and large files and enables the connection of consumer products such as digital camcorders or set-top boxes directly to a personal computer. We may be unable to license these enabling technologies at favorable terms or at all which may result in lower demand for BeOS. International sales of our product account for a significant portion of our revenue which exposes us to risks inherent in international operationsWe market and sell our products in the United States and internationally. International sales of our products accounted for approximately 53% and 61% of total revenues for the year ended December 31, 1998 and for the three month period ended March 31, 1999, respectively. Sales to Europe and Asia accounted for approximately 16% and 37%, respectively, of our net revenues for the twelve month period ended December 31, 1998. For the three month period ended March 31, 1999, sales to Europe and Asia accounted for approximately 37% and 24%, respectively, of our net revenues. We have a subsidiary in France that markets and sells our products in Europe. In addition, we may in the future open offices in other countries to market and sell our products in those countries and surrounding regions. The expansion of our existing international operations and entry into additional international markets will require significant management attention and financial resources. We cannot be certain that our investments in establishing facilities in other countries will produce desired levels of revenue. We currently have limited experience in developing localized versions of our products and marketing and distributing our products internationally. Additional risks inherent with conducting business in Europe and Asia include: . the impact of recessions in economies outside the United States; . greater difficulty in accounts receivable collection and longer collection periods; . seasonal reductions in business activities in some parts of the world, such as during the summer months in Europe; . potentially adverse tax consequences, including higher tax rates generally in Europe; . costs of localizing our products for foreign markets; . tariffs, duties, price controls or other restrictions on foreign currencies or trade barriers imposed by foreign countries; . unexpected changes in regulatory requirements of foreign countries, especially those with respect to telecommunications and use of the Internet; . impact of currency exchange fluctuationsPresently all of our international revenues are denominated in US dollars. In the future, we expect an increasing portion of our international revenues to be denominated in foreign currencies. We do not currently engage in currency hedging activities. Future fluctuations in currency exchange rates may adversely affect revenues from international sales. We depend on key personnel and attracting qualified employees for our future successOur success depends to a significant degree upon the continued contributions of our executive management team, including our co-founders Jean-Louis Gassee and Steve Sakoman, our Chief Executive Officer and Vice President, Engineering and Chief Technical Officer, respectively, and other senior level financial, technical, marketing and sales personnel such as Roy Graham and Wesley Saia our Executive Vice President, Sales and Marketing and Vice President and Chief Financial Officer, respectively. The loss of these or other members of our senior management team could have a material adverse effect on our business and results of operations. 13As of March 31, 1999, we had 93 employees. We anticipate that the number of employees may increase significantly during the next 12 months as we increase our research and development activities and sales and marketing efforts. Our success depends upon our ability to attract and retain additional highly qualified senior management and technical, sales and marketing personnel to support growing operations. Competition for qualified employees is intense. The process of locating and hiring personnel with the combination of skills and attributes required to carry out our strategy is time-consuming and costly. The loss of key personnel or our inability to attract additional qualified personnel to supplement or, if necessary, to replace existing personnel, could have a material adverse effect on our business and results of operations. See "Management." We may be unable to manage any growth that we may experienceTo succeed in the implementation of our business strategy, we must rapidly execute our sales and marketing strategy, further develop and enhance our products and product support capabilities, and implement effective planning and operating processes. To manage any anticipated growth we must: . establish and manage multiple relationships with OEMs, Internet service and content providers and other third parties; . continue to implement and improve our operational, financial and management information systems; and . hire, train and retain additional qualified personnelOur systems, procedures and controls may not be adequate to support our operations, and our management may not be able to perform the tasks required to capitalize on market opportunities for our products and services. If we fail to manage our growth effectively, our business could suffer materially. Fluctuations in the exchange rate of foreign currencies could have a negative impact on our product sales and profitabilityDue to our international operations, we incur expenses in a number of currencies. A majority of our sales, including international sales, however, are currently denominated in U.S. dollars. In the future, we expect an increasing portion of our international revenues to be denominated in local currencies. Fluctuations in the value of the U.S. dollar and foreign currencies may make our products more expensive than local product offerings. We do not currently engage in currency hedging activities to limit the risks of exchange rate fluctuations. Fluctuations in the value of foreign currencies could have a negative impact on the profitability of our global operations which would seriously harm our business, financial condition and results of operations. Risk Related to our Industry We may not be able to respond to the rapid technological change in the markets in which we competeThe markets in which we participate or seek to participate are subject to: . rapid technological change; . frequent product upgrades and enhancements; . changing customer requirements for new products and features; and . multiple, competing and evolving industry standards The introduction of operating systems that contain new technologies and the emergence of new industry standards could render BeOS less desirable or obsolete. In particular, we expect that changes in the Internet-based technology and digital media enabling technology will require us to rapidly evolve and adapt our products to be competitive. As a result, the life cycle of each release of BeOS is difficult to estimate. To be competitive, we will need to develop and release new products and operating system upgrades that respond 14 technological changes or evolving industry standards on a timely and cost- effective basis. We cannot be certain that we will successfully develop and market these types of products and operating system upgrades or that our products will achieve market acceptance. If we fail to produce technologically competitive products in a cost-effective manner and on a timely basis, our business and results of operations could suffer materially. Product defects may harm our business and reputationComputer operating systems, including BeOS, and related software products frequently contain errors or bugs. We have detected and may continue to detect errors and product defects in connection with new release and upgrades of our operating system and related products. Despite our internal testing and testing by current and potential customers, errors may be discovered after BeOS or related software and tools are installed and used by customers. These errors could result in reduced or lost revenue, delay in market acceptance, diversion of development resources, damage to our reputation, or increased service and warranty costs, any of which could materially adversely affect our business and results of operationsOur products must successfully integrate with products from other vendors, such as third party software applications and computer hardware. As a result, when problems occur in a personal computer or any other device or network using our products, it may be difficult to identify the source of the problem. The occurrence of hardware and software errors, whether caused by our products or another vendor's products, may result in reduced or loss of market acceptance of our products, and any necessary product revisions may force us to incur significant expenses. The occurrence of these problems could materially adversely affect our business and results of operations. We face risks relating to our online operationsA significant barrier to widespread use of electronic commerce sites, such as our BeDepot.com Web site, is concern regarding the security of confidential information transmitted over public networks. We rely on encryption and authentication technology licensed from third parties to provide the security and authentication necessary to effect secure transmission of confidential information, such as customer credit card numbers. Concerns over the security of transactions conducted on the Internet and the privacy of users may also inhibit the growth of online services, especially as a means of conducting commercial transactions. Our failure to prevent any security breaches may have a material adverse effect on our business and results of operationsDespite our efforts to protect the integrity of our Web site and products sold on it, a party may be able to circumvent our security measures and could misappropriate proprietary information or cause interruptions in our operations and damage to our reputation. Any such action could negatively affect our customers' willingness to engage in online commerce with us. We may be required to expend significant capital and other resources to protect against these security breaches or to alleviate problems caused by these breaches. If any compromise of our security were to occur, it could materially adversely affect our reputation and business. Our success is dependent on the continued growth and improvement of the InternetOur future success depends on the continued growth and reliance by consumers and businesses on the Internet, particularly in the Internet appliance market. Use and growth of the Internet will depend in significant part on continued rapid growth in the number of households and commercial, educational and government institutions with access to the Internet. The use and growth of the Internet will also depend on the number and quality of products and services designed for use on the Internet. Because use of the Internet as a source of information, products and services is a relatively recent phenomenon, it is difficult to predict whether the number of users drawn to the Internet will continue to increase and whether any significant market for commercial use of the Internet will continue to develop and expand. Either Internet use patterns may decline as the novelty of the medium recedes or the quality of products and services offered online may not support continued or increased use. 15The rapid rise in the number of Internet users and the growth of electronic commerce and applications for the Inter | 1 | < 0.1% | |
| Other values (3047) | 3047 | 91.5% | |
| (Missing) | 273 | 8.2% |
| Max length | 32767 |
|---|---|
| Mean length | 28462.92252 |
| Min length | 3 |
| Contains chars | True |
| Contains digits | True |
| Contains spaces | True |
| Contains non-words | True |
roa
Numeric
| Distinct count | 2932 |
|---|---|
| Unique (%) | 88.0% |
| Missing (%) | 11.8% |
| Missing (n) | 392 |
| Infinite (%) | 0.0% |
| Infinite (n) | 0 |
| Mean | -0.1273795482 |
|---|---|
| Minimum | -12.45948946 |
| Maximum | 1.78130217 |
| Zeros (%) | < 0.1% |
Quantile statistics
| Minimum | -12.45948946 |
|---|---|
| 5-th percentile | -0.6556836903 |
| Q1 | -0.2069382406 |
| Median | -0.005948718697 |
| Q3 | 0.04325948379 |
| 95-th percentile | 0.152261726 |
| Maximum | 1.78130217 |
| Range | 14.24079163 |
| Interquartile range | 0.2501977244 |
Descriptive statistics
| Standard deviation | 0.4525257137 |
|---|---|
| Coef of variation | -3.552577474 |
| Kurtosis | 261.8163367 |
| Mean | -0.1273795482 |
| MAD | 0.2222233922 |
| Skewness | -12.13976851 |
| Sum | -374.2411127 |
| Variance | 0.2047795216 |
| Memory size | 26.1 KiB |
Histogram with fixed size bins (bins=50)
| Value | Count | Frequency (%) | |
| 0.03049457589 | 4 | 0.1% | |
| -0.6556836903 | 2 | 0.1% | |
| -0.3417159919 | 2 | 0.1% | |
| -0.5949809886 | 2 | 0.1% | |
| -0.2529246993 | 2 | 0.1% | |
| 0.07369627507 | 1 | < 0.1% | |
| -0.8387723388 | 1 | < 0.1% | |
| -0.2558480372 | 1 | < 0.1% | |
| 0.1349469496 | 1 | < 0.1% | |
| -0.0165052662 | 1 | < 0.1% | |
| Other values (2921) | 2921 | 87.7% | |
| (Missing) | 392 | 11.8% |
Minimum 5 values
| Value | Count | Frequency (%) | |
| -12.45948946 | 1 | < 0.1% | |
| -9.164893617 | 1 | < 0.1% | |
| -6.164203085 | 1 | < 0.1% | |
| -4.577086882 | 1 | < 0.1% | |
| -4.093584906 | 1 | < 0.1% |
Maximum 5 values
| Value | Count | Frequency (%) | |
| 1.78130217 | 1 | < 0.1% | |
| 0.7253003635 | 1 | < 0.1% | |
| 0.6492075851 | 1 | < 0.1% | |
| 0.5674022628 | 1 | < 0.1% | |
| 0.5324116886 | 1 | < 0.1% |
sharesOfferedPerc
Numeric
| Distinct count | 2199 |
|---|---|
| Unique (%) | 66.0% |
| Missing (%) | 7.9% |
| Missing (n) | 262 |
| Infinite (%) | 0.0% |
| Infinite (n) | 0 |
| Mean | 30.14595828 |
|---|---|
| Minimum | 0.39 |
| Maximum | 100 |
| Zeros (%) | 0.0% |
Quantile statistics
| Minimum | 0.39 |
|---|---|
| 5-th percentile | 10.5035 |
| Q1 | 18.62 |
| Median | 25.72 |
| Q3 | 35.44 |
| 95-th percentile | 73.6525 |
| Maximum | 100 |
| Range | 99.61 |
| Interquartile range | 16.82 |
Descriptive statistics
| Standard deviation | 18.29188517 |
|---|---|
| Coef of variation | 0.6067773662 |
| Kurtosis | 3.595483208 |
| Mean | 30.14595828 |
| MAD | 12.85673676 |
| Skewness | 1.799120493 |
| Sum | 92487.8 |
| Variance | 334.5930629 |
| Memory size | 26.1 KiB |
Histogram with fixed size bins (bins=50)
| Value | Count | Frequency (%) | |
| 100 | 27 | 0.8% | |
| 86.96 | 11 | 0.3% | |
| 12.61 | 6 | 0.2% | |
| 19.34 | 5 | 0.2% | |
| 26.83 | 5 | 0.2% | |
| 18.56 | 5 | 0.2% | |
| 22.49 | 5 | 0.2% | |
| 25.11 | 5 | 0.2% | |
| 22.79 | 5 | 0.2% | |
| 21.05 | 5 | 0.2% | |
| Other values (2188) | 2989 | 89.8% | |
| (Missing) | 262 | 7.9% |
Minimum 5 values
| Value | Count | Frequency (%) | |
| 0.39 | 1 | < 0.1% | |
| 1.02 | 1 | < 0.1% | |
| 1.07 | 1 | < 0.1% | |
| 1.42 | 1 | < 0.1% | |
| 1.45 | 1 | < 0.1% |
Maximum 5 values
| Value | Count | Frequency (%) | |
| 100 | 27 | 0.8% | |
| 99.93 | 1 | < 0.1% | |
| 99.88 | 1 | < 0.1% | |
| 99.86 | 1 | < 0.1% | |
| 99.82 | 1 | < 0.1% |
sp2weeksBefore
Highly correlated
This variable is highly correlated with nasdaq2weeksBefore and should be ignored for analysis
| Correlation | 0.964605601 |
|---|
totalAssets
Numeric
| Distinct count | 2951 |
|---|---|
| Unique (%) | 88.6% |
| Missing (%) | 10.7% |
| Missing (n) | 357 |
| Infinite (%) | 0.0% |
| Infinite (n) | 0 |
| Mean | 1461.073875 |
|---|---|
| Minimum | 0.99 |
| Maximum | 293030 |
| Zeros (%) | 0.0% |
Quantile statistics
| Minimum | 0.99 |
|---|---|
| 5-th percentile | 18.938 |
| Q1 | 66.23 |
| Median | 154.725 |
| Q3 | 551.256 |
| 95-th percentile | 3734.0922 |
| Maximum | 293030 |
| Range | 293029.01 |
| Interquartile range | 485.026 |
Descriptive statistics
| Standard deviation | 11017.364 |
|---|---|
| Coef of variation | 7.540593392 |
| Kurtosis | 396.4657826 |
| Mean | 1461.073875 |
| MAD | 2109.264743 |
| Skewness | 18.6287398 |
| Sum | 4343772.629 |
| Variance | 121382309.6 |
| Memory size | 26.1 KiB |
Histogram with fixed size bins (bins=50)
| Value | Count | Frequency (%) | |
| 11707 | 4 | 0.1% | |
| 116.58 | 2 | 0.1% | |
| 139.611 | 2 | 0.1% | |
| 153.031 | 2 | 0.1% | |
| 56.795 | 2 | 0.1% | |
| 23.965 | 2 | 0.1% | |
| 104.308 | 2 | 0.1% | |
| 5.406 | 2 | 0.1% | |
| 281.771 | 2 | 0.1% | |
| 116.661 | 2 | 0.1% | |
| Other values (2940) | 2951 | 88.6% | |
| (Missing) | 357 | 10.7% |
Minimum 5 values
| Value | Count | Frequency (%) | |
| 0.99 | 1 | < 0.1% | |
| 1.266 | 1 | < 0.1% | |
| 1.797 | 1 | < 0.1% | |
| 1.825 | 1 | < 0.1% | |
| 2.139 | 1 | < 0.1% |
Maximum 5 values
| Value | Count | Frequency (%) | |
| 293030 | 1 | < 0.1% | |
| 255018 | 1 | < 0.1% | |
| 221023.2 | 1 | < 0.1% | |
| 220797 | 1 | < 0.1% | |
| 151828 | 1 | < 0.1% |
totalProceeds
Highly correlated
This variable is highly correlated with ipoSize and should be ignored for analysis
| Correlation | 0.9951531237 |
|---|
totalRevenue
Numeric
| Distinct count | 2760 |
|---|---|
| Unique (%) | 82.9% |
| Missing (%) | 11.3% |
| Missing (n) | 375 |
| Infinite (%) | 0.0% |
| Infinite (n) | 0 |
| Mean | 556.6838717 |
|---|---|
| Minimum | -18.834 |
| Maximum | 135592 |
| Zeros (%) | 5.3% |
Quantile statistics
| Minimum | -18.834 |
|---|---|
| 5-th percentile | 0 |
| Q1 | 19.7255 |
| Median | 73.667 |
| Q3 | 274.8985 |
| 95-th percentile | 2119.3281 |
| Maximum | 135592 |
| Range | 135610.834 |
| Interquartile range | 255.173 |
Descriptive statistics
| Standard deviation | 3152.987979 |
|---|---|
| Coef of variation | 5.663875207 |
| Kurtosis | 1160.88751 |
| Mean | 556.6838717 |
| MAD | 771.4545387 |
| Skewness | 29.07194647 |
| Sum | 1645000.841 |
| Variance | 9941333.199 |
| Memory size | 26.1 KiB |
Histogram with fixed size bins (bins=50)
| Value | Count | Frequency (%) | |
| 0 | 176 | 5.3% | |
| 8268 | 4 | 0.1% | |
| 0.686 | 3 | 0.1% | |
| 4.436 | 2 | 0.1% | |
| 3207.7 | 2 | 0.1% | |
| 0.191 | 2 | 0.1% | |
| 49.352 | 2 | 0.1% | |
| 0.869 | 2 | 0.1% | |
| 173.911 | 2 | 0.1% | |
| 8.57 | 2 | 0.1% | |
| Other values (2749) | 2758 | 82.8% | |
| (Missing) | 375 | 11.3% |
Minimum 5 values
| Value | Count | Frequency (%) | |
| -18.834 | 1 | < 0.1% | |
| 0 | 176 | 5.3% | |
| 0.008 | 1 | < 0.1% | |
| 0.01 | 1 | < 0.1% | |
| 0.012 | 1 | < 0.1% |
Maximum 5 values
| Value | Count | Frequency (%) | |
| 135592 | 1 | < 0.1% | |
| 42249 | 1 | < 0.1% | |
| 31947 | 1 | < 0.1% | |
| 29682 | 1 | < 0.1% | |
| 27177 | 1 | < 0.1% |
vc
Boolean
| Distinct count | 2 |
|---|---|
| Unique (%) | 0.1% |
| Missing (%) | 0.0% |
| Missing (n) | 0 |
| False | |
|---|---|
| True |
| Value | Count | Frequency (%) | |
| False | 1909 | 57.3% | |
| True | 1421 | 42.7% |
year
Numeric
| Distinct count | 23 |
|---|---|
| Unique (%) | 0.7% |
| Missing (%) | 0.0% |
| Missing (n) | 0 |
| Infinite (%) | 0.0% |
| Infinite (n) | 0 |
| Mean | 2005.031832 |
|---|---|
| Minimum | 1996 |
| Maximum | 2018 |
| Zeros (%) | 0.0% |
Quantile statistics
| Minimum | 1996 |
|---|---|
| 5-th percentile | 1997 |
| Q1 | 1999 |
| Median | 2004 |
| Q3 | 2012 |
| 95-th percentile | 2017 |
| Maximum | 2018 |
| Range | 22 |
| Interquartile range | 13 |
Descriptive statistics
| Standard deviation | 7.062196879 |
|---|---|
| Coef of variation | 0.003522236788 |
| Kurtosis | -1.263729148 |
| Mean | 2005.031832 |
| MAD | 6.202863043 |
| Skewness | 0.4040023718 |
| Sum | 6676756 |
| Variance | 49.87462476 |
| Memory size | 26.1 KiB |
Histogram with fixed size bins (bins=23)
Histogram with variable size bins (bins=[1996. 1997.5 1998.5 2000.5 2003.5 ... 2009.5 2012.5 2014.5 2017.5 2018. ], "bayesian blocks" binning strategy used)
| Value | Count | Frequency (%) | |
| 1997 | 371 | 11.1% | |
| 1999 | 362 | 10.9% | |
| 2000 | 292 | 8.8% | |
| 1998 | 218 | 6.5% | |
| 2014 | 205 | 6.2% | |
| 2004 | 174 | 5.2% | |
| 1996 | 157 | 4.7% | |
| 2013 | 154 | 4.6% | |
| 2007 | 150 | 4.5% | |
| 2006 | 150 | 4.5% | |
| Other values (13) | 1097 | 32.9% |
Minimum 5 values
| Value | Count | Frequency (%) | |
| 1996 | 157 | 4.7% | |
| 1997 | 371 | 11.1% | |
| 1998 | 218 | 6.5% | |
| 1999 | 362 | 10.9% | |
| 2000 | 292 | 8.8% |
Maximum 5 values
| Value | Count | Frequency (%) | |
| 2018 | 137 | 4.1% | |
| 2017 | 106 | 3.2% | |
| 2016 | 69 | 2.1% | |
| 2015 | 118 | 3.5% | |
| 2014 | 205 | 6.2% |
First rows
| age | amountOnProspectus | blueSky | bookValue | city | closeDay1 | commonEquity | commonEquity.1 | dj2weeksBefore | egc | exchange | highTech | html | industryFF12 | industryFF48 | industryFF5 | investmentReceived | ipoSize | issuer | leverage | managementFee | manager | nasdaq2weeksBefore | netIncome | nExecutives | nPatents | nUnderwriters | nVCs | offerPrice | patRatio | pe | priorFinancing | prominence | reputationAvg | reputationLeadAvg | reputationLeadMax | reputationSum | rf | roa | sharesOfferedPerc | sp2weeksBefore | totalAssets | totalProceeds | totalRevenue | vc | year | |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 0 | 5.0 | 77.5 | 8000.0 | 219.134116 | SAN JOSE | 35.5625 | NaN | 100.00 | 11112.72 | False | NASDQ | True | False | Business Equipment -- Computers, Software, and Electronic Equipment | Electronic Equipment | Business Equipment, Telephone and Television Transmission | 64190.0 | 68114956.0 | Numerical Technologies Inc | 0.000000 | 924417.0 | Credit Suisse First Boston Corp | 4963.03 | -48.811 | 5.0 | 1 | 14 | 5.0 | 14.0 | 0.492063 | False | 64190.0 | 1 | 7.572429 | 9.0010 | 9.001 | 106.014 | RISK FACTORS You should carefully consider the following risk factors and all other information contained in this prospectus before purchasing our common stock. If the key markets within the semiconductor industry, especially semiconductor manufacturers, do not adopt our proprietary technologies and software products, we may be unable to generate sales of our productsThe four key markets within the semiconductor industry are semiconductor designers and design tool vendors, photomask manufacturers, semiconductor equipment manufacturers and semiconductor manufacturers. If these key markets do not adopt our proprietary technologies and software products, our product sales could decline. We design our technologies and products so that each key market within the semiconductor industry can work efficiently with the other markets. For example, if designers do not adopt our technologies and products, it will be more difficult for them to design semiconductors which are understood and processed efficiently by mask manufacturers that do adopt our technologies and products. In addition, we believe semiconductor manufacturers need to adopt our proprietary technologies and software products first in order to drive adoption by the other three markets. Semiconductor manufacturers define and develop the manufacturing process. While designers, mask manufacturers and equipment manufacturers are not required to adopt our technologies and products in order to work with semiconductor manufacturers that do adopt them, the efficiency of the entire manufacturing process is greatly diminished if they do not. If each key market of the semiconductor industry does not perceive our proprietary technologies and software products as the industry standard, our technologies and products could become less valuable and more difficult to license. Factors that may limit adoption of our subwavelength solution within the markets include: . our current and potential industry partners and customers may fail to adopt our technologies and products; . semiconductor designers may not need subwavelength processes if there is a slowdown in semiconductor manufacturing or a decrease in the demand for smaller semiconductor feature sizes; and . the industry may develop alternative methods to produce subwavelength features with existing capital equipment due to a rapidly evolving market and the likely emergence of new technologies. In order for potential industry partners and customers to adopt, and expend their own resources to implement, our technologies and products, we must expend significant marketing resources, with no guarantee of successOur proprietary technologies and software products involve a new approach to the subwavelength gap problem. As a result, we must employ intensive and sophisticated marketing and sales efforts to educate prospective industry partners and customers about the benefits of our technologies and products, with no guarantee of success. Our sales and marketing expenses increased from $1.4 million in 1998 to $4.3 million in 1999. In addition, even if our industry partners and customers adopt our proprietary technologies and software products, they must devote the resources necessary to fully integrate our technologies and products into their operations. This is especially true for our industry partners so that they can begin to resell and market our solution to their customers. If they do not make these expenditures, establishing our technologies and products as the industry standard to the subwavelength gap problem will be difficult. Our limited operating history and dependence on new technologies make it difficult to evaluate our future prospectsWe only have a limited operating history on which you can base your evaluation of our business. We face a number of risks as an emerging company in a new market. For example, the key markets within the 7 semiconductor industry may fail to adopt our proprietary technologies and software products, or we may not be able to establish distribution channels. Our company incorporated in October 1995. In February 1997, we shipped our initial software product, IC Workbench. We have only recently begun to expand our operations significantly. For example, we grew from 47 employees as of January 1, 1999 to 105 employees as of January 1, 2000. We have a history of losses, we expect to incur losses in the future and we may be unable to achieve profitabilityWe may not achieve profitability if our revenue increases more slowly than we expect or not at all. In addition, our operating expenses are largely fixed, and any shortfall in anticipated revenue in any given period could cause our operating results to decrease. We have not been profitable in any quarter, and our accumulated deficit was approximately $16.2 million as of December 31, 1999. We expect to continue to incur significant operating expenses in connection with increased funding for research and development and expansion of our sales and marketing efforts. In addition, we expect to incur additional noncash charges relating to amortization of intangibles and deferred stock compensation. As a result, we will need to generate significant revenue to achieve and maintain profitability. If we do achieve profitability, we may be unable to sustain or increase profitability on a quarterly or annual basis. Any of the factors discussed above could cause our stock price to decline. We recently acquired Transcription Enterprises Limited and if we are not successful in integrating Transcription's products and operations with ours, our revenue and operating results could declineOur recent acquisition of Transcription Enterprises Limited will only be successful if we are able to integrate its operations with ours, which could substantially divert management's attention from the day-to-day operations of the combined company. If we encounter any difficulties in the transition process, the revenue and operating results of the combined company could decline. We must successfully integrate Transcription's products with ours. We must also coordinate our research and development and sales and marketing efforts to realize the technological benefits of this combinationWe may find it difficult to integrate personnel with disparate business backgrounds and combine two different corporate cultures. In addition, the process of combining our company with Transcription could interrupt the activities of either or both of the companies' businesses. It is possible that we will not be able to retain key Transcription management, technical and sales personnelIn addition, the acquisition of Transcription could cause our industry partners and customers to be uncertain about our ability to support the combined companies' products and the direction of the combined companies' product development efforts. As a result, they may delay or cancel product orders, which could significantly decrease our revenue and limit our ability to implement our combined business strategy. Our acquisition of Transcription may increase the focus of the semiconductor industry on the manufacturing data preparation market, which could lead to a rapid and substantial increase in competitionOur recent acquisition of Transcription may increase the semiconductor industry's awareness of the market for manufacturing data preparation software, which could lead to a substantial increase in the number of start-up companies that focus on software solutions for data preparation. Manufacturing data preparation software translates semiconductor designs into instructions that control manufacturing equipment. Potential competitors could pursue and execute partnership agreements with key industry partners we intend to pursue, which could make it difficult or impossible for us to develop relationships with these potential industry partners. In addition, some of our current competitors may increase their own research and development budgets relating to data preparation, or may more aggressively market competing solutions. 8 If we do not continue to introduce new technologies and software products or product enhancements ahead of rapid technological change in the market for subwavelength solutions, our operating results could decline and we could lose our competitive positionWe must continually devote significant engineering resources to enable us to introduce new technologies and software products or product enhancements to address the evolving needs of key markets within the semiconductor industry in solving the subwavelength gap problem. We must introduce these innovations and the key markets within the semiconductor industry must adopt them before changes in the semiconductor industry, such as the introduction by our current and potential competitors of more advanced products or the emergence of alternative technologies, render the innovations obsolete, which could cause us to lose our competitive position. These innovations are inherently complex, require long development cycles and a substantial investment before we can determine their commercial viability. Moreover, designers, mask manufacturers and equipment manufacturers must each respond to the demand of the market to design and manufacture masks and equipment for increasingly smaller and complex semiconductors. Our innovations must be viable and meet the needs of these key markets within the semicondutor industry before the consumer market demands even smaller semiconductors, rendering the innovations obsolete. We may not have the financial resources necessary to fund any future innovations. In addition, any revenue that we receive from enhancements or new generations of our proprietary technologies and software products may be less than the costs of development. Fluctuations in our quarterly operating results may cause our stock price to declineIt is likely that our future quarterly operating results may fluctuate from time to time and may not meet the expectations of securities analysts and investors in some future period. As a result, the price of our common stock could decline. Historically, our quarterly operating results have fluctuated. We may experience significant fluctuations in future quarterly operating results. The following factors may cause these fluctuations: . the timing and structure of our product license agreements; . changes in our pricing policies or those of our competitors; and . changes in the level of our operating expenses to support our projected growth. We intend to pursue new, and maintain our current, industry partner relationships, which could substantially divert management attention and resources, with no guarantee of successWe expect to derive significant benefits, including increased revenue and customer awareness, from our current and potential industry partner relationships. In our pursuit to maintain and establish partner relationships within each of the key markets in the semiconductor industry, we could expend significant management attention, resources and sales personnel efforts, with no guarantee of success. To establish and maintain our partner relationships, we expend our limited financial resources on increasing our sales and business development personnel, trade shows and marketing within trade publications. If we did not have to pursue potential industry partners, we could focus these resources exclusively on direct sales to our customers. In addition, through our partner relationships, our partners resell, market, either jointly with us or unilaterally, and promote our technologies and products. If these relationships terminate, such as due to our material breach of the contracts or the partners' election to cancel the contract, which generally is permissible with prior notice to us, we would have to increase our own limited marketing and sales resources for these activities. Further, we may be unable to enter into new industry partner relationships if any of the following occur: . current or potential industry partners develop their own solutions to the subwavelength gap problem; or . our current or potential competitors establish relationships with industry partners with which we seek to establish a relationship. 9 We have only recently entered into many of our current partner relationships. These relationships may not continue or they may not be successful. We also may be unable to find suitable additional industry partners. To date, we have entered into agreements with industry partners, including: . Cadence in the design market; . DuPont Photomask and Photronics in the mask manufacturing market; and . Applied Materials, KLA-Tencor and Zygo Corporation in the semiconductor equipment market. Many of our current competitors have longer operating histories and significantly greater financial, technical, marketing and other resources than we do and as a result, they may acquire a significant market share before we Our current competitors, or alliances among these competitors, may rapidly acquire significant market share. These competitors may have greater name recognition and more customers which they could use to gain market share to our detriment. We encounter direct competition from other direct providers of phase shifting, OPC and manufacturing data technologies. These competitors include such companies as Avant! and Mentor Graphics. We also compete with companies that have developed or have the ability to develop their own proprietary phase shifting and OPC solutions, such as IBM. These companies may wish to promote their internally developed products and may be reluctant to purchase products from us or other independent vendors. Our competitors may offer a wider range of products than we do and thus may be able to respond more quickly to new or changing opportunities, technologies and customer requirements. These competitors may also be able to undertake more extensive promotional activities, offer more attractive terms to customers than we do and adopt more aggressive pricing policies. Moreover, our competitors may establish relationships among themselves or with industry partners to enhance their services, including industry partners with which we may desire to establish a relationship. The market for software solutions that address the subwavelength gap problem is new and rapidly evolving. We expect competition to intensify in the future, which could slow our ability to grow or execute our strategyWe believe that the demand for solutions to the subwavelength gap problem may encourage many competitors to enter into our market. As the market for software solutions to the subwavelength gap problem proliferates, if our competitors are able to attract industry partners or customers on a more accelerated pace than we can and retain them more effectively, we would not be able to grow and execute our strategy as quickly. In addition, if customer preferences shift away from our technologies and software products as a result of the increase in competition, we must develop new proprietary technologies and software products to address these new customer demands. This could result in the diversion of management attention or our development of new technologies and products may be blocked by other companies' patents. We must offer better products, customer support, prices and response time, or a combination of these factors, than those of our potential competitors. We are growing rapidly and must effectively manage and support our growth in order for our business strategy to succeedWe have grown rapidly and will need to continue to grow in all areas of operation. If we are unable to successfully integrate and support our existing and new employees into our operations, we may be unable to implement our business strategy in the time frame we anticipate, or at all. Due to our rapid growth in headcount, we outgrew our principal office facilities earlier than we expected. As a result, we recently relocated to San Jose, California and may need to relocate to a larger facility in the future, which could be difficult in the very competitive Silicon Valley office leasing market. In addition, building and managing the support necessary for our growth places significant demands on our management as well as our limited revenue. These demands have, and may continue to, divert these resources away from the continued growth of our business and 10 implementation of our business strategy. Further, we must adequately train our new personnel, especially our technical support personnel, to adequately, and accurately, respond to and support our industry partners and customers. If we fail to do this, it could lead to dissatisfaction among our partners or customers, which could slow our growth. We must continually attract and retain engineering personnel or we will be unable to execute our business strategyWe have experienced, and we expect to continue to experience, difficulty in hiring and retaining highly skilled engineers with appropriate qualifications to support our rapid growth and expansion. We must continually enhance and introduce new generations of our phase shifting and OPC technologies. As a result, our future success depends in part on our ability to identify, attract, retain and motivate qualified engineering personnel with the requisite educational background and industry experience. If we lose the services of a significant number of our engineers, it could disrupt our ability to implement our business strategy. Competition for qualified engineers is intense, especially in the Silicon Valley where we are located. Our chief executive officer and chief technology officer, as well as the co- founders of Transcription, are critical to our business and they may not remain with us in the futureOur future success will depend to a significant extent on the continued services of Y. C. (Buno) Pati, our President and Chief Executive Officer, Yao- Ting Wang, our Chief Technology Officer, Roger Sturgeon, one of our directors and a senior executive of Transcription and Kevin MacLean, Vice President and General Manager of Transcription. If we lose the services of any of these key executives, it could slow our product development processes and searching for their replacements could divert our other senior management's time and increase our operating expenses. In addition, our industry partners and customers could become concerned about our future operations, which could injure our reputation. We do not have long-term employment agreements with these executives and we do not maintain any key person life insurance policies on their lives. If we fail to protect our intellectual property rights, competitors may be able to use our technologies which could weaken our competitive position, reduce our revenue or increase our costsOur success depends heavily upon proprietary technologies, specifically our patent portfolio. The rights granted under our patents and patent applications may not provide competitive advantages to us. In addition, litigation may be necessary to enforce our intellectual property rights or to determine the validity and scope of the proprietary rights of others. As a result of any such litigation, we could lose our proprietary rights and incur substantial unexpected operating costs. Litigation could also divert our resources, including our managerial and engineering resources. We rely primarily on a combination of patents, copyrights, trademarks and trade secrets to protect our proprietary rights and prevent competitors from using our proprietary technologies in their products. These laws and procedures provide only limited protection. We have been issued two U.S. patents, have five U.S. patent applications currently pending in the U.S. and nine foreign patent applications currently pending in selected foreign countries. Our pending patent applications may not result in issued patents, and our existing and future patents may not be sufficiently broad to protect our proprietary technologies. Also, patent protection in foreign countries may be limited or unavailable where we have filed for and need such protection. Furthermore, if we fail to adequately protect our trademark rights, this could impair our brand identity and ability to compete effectively. If we do not successfully protect our trademark rights, this could force us to incur costs to re-establish our name or our product names, including significant marketing activities. If third parties assert that our proprietary technologies and software products infringe their intellectual property rights, this could injure our reputation and limit our ability to license or sell our proprietary technologies or software productsThird parties, for competitive or other reasons, could assert that our proprietary technologies and software products infringe their intellectual property rights. These claims could injure our reputation and decrease or 11 block our ability to license or sell our software products. For example, on March 14, 2000, ASML MaskTools, Inc. filed a complaint alleging we infringe two U.S. patents and have committed unfair or fraudulent business practice under the California Business and Professions Code. We are currently investigating the patents and allegations. The defense of these claims could divert management's attention from the day to day operations of our company, as well as divert resources from current planned uses, such as hiring and supporting additional engineering personnel. Litigation is inherently uncertain, and an adverse decision could limit our ability to offer some features in our OPC product. Third parties have advised us of literature which they believe to be relevant to our patents. We have not reviewed all of the information contained in this literature. It is possible that this literature or literature we may be advised of in the future could negatively affect the scope or enforceability of our present or future patents, and/or result in costly litigation. In addition, we are aware of and are evaluating certain patents with which our products, patents or patent applications may conflict. If any of these patents are found to be valid, and we are unable to license such patents on reasonable terms, or if our products, patents, or patent applications are found to conflict with these patents, we could be prevented from selling our products, our patents may be declared invalid or our patent applications may not result in issued patents. In addition, a company could invite us to take a patent license. If we do not take the license, the requesting company could contact our industry partners or customers and suggest that they not use our software products because we are not licensed under their patents. This action by the requesting company could affect our relationships with these industry partners and customers and may prevent future industry partners and customers from licensing our software products. The intensely competitive nature of our industry and the important nature of our technologies to our competitors' businesses may contribute to the likelihood of being subject to third party claims of this nature. Please see "Business--Intellectual Property." Any potential dispute involving our patents or other intellectual property could include our industry partners and customers, which could trigger our indemnification obligations with them and result in substantial expense to usIn any potential dispute involving our patents or other intellectual property, our licensees could also become the target of litigation. This could trigger our technical support and indemnification obligations in some of our license agreements which could result in substantial expense to us. In addition to the time and expense required for us to supply such support or indemnification to our licensees, any such litigation could severely disrupt or shut down the business of our licensees, which in turn could hurt our relations with our customers and cause the sale of our proprietary technologies and software products to decrease. Defects in our proprietary technologies and software products could decrease our revenue and our competitive market shareIf our industry partners and customers discover any defects after they implement our proprietary technologies and software products, these defects could significantly decrease the market acceptance and sales of our software products, which could decrease our competitive market share. Any actual or perceived defects with our proprietary technologies and software products may also hinder our ability to attract or retain industry partners or customers, leading to a decrease in our revenue. These defects are frequently found during the period following introduction of new products or enhancements to existing products. Despite testing prior to introduction, our software products may contain software errors not discovered until after customer implementation. If our software products contain errors or defects, it could require us to expend significant resources to alleviate these problems, which could result in the diversion of technical and other resources from our other development efforts. We face operational and financial risks associated with international operationsWe derive a significant portion of our revenue from international sales. We have only limited experience in developing, marketing, selling and supporting our proprietary technologies and software products 12 internationally and may not succeed in maintaining or expanding our international operations, which could slow our revenue growth. We are subject to risks inherent in doing business in international markets. These risks include: . fluctuations in exchange rates which may negatively affect our operating results; . greater difficulty in collecting accounts receivable resulting in longer collection periods; . compliance with and unexpected changes in a wide variety of foreign laws and regulatory environments with which we are not familiar; . export controls which could prevent us from shipping our software products into and from some markets; . changes in import/export duties and quotas could affect the competitive pricing of our software products and reduce our market share in some countries; and . economic or political instabilityWe may be unable to continue to market our proprietary technologies and software products successfully in international markets. We may need to raise additional funds to support our growth or execute our strategy and if we are unable to do so, we may be unable to develop or enhance our proprietary technologies and software products, respond to competitive pressures or acquire desired businesses or technologiesWe currently anticipate that our available cash resources, combined with the net proceeds from this offering, will be sufficient to meet our presently anticipated working capital and capital expenditure requirements for at least the next 12 months. However, we may need to raise additional funds in order to: . support more rapid expansion; . develop new or enhanced products; . respond to competitive pressures; or . acquire complementary businesses or technologiesThese factors will impact our future capital requirements and the adequacy of our available funds. We may need to raise additional funds through public or private financings, strategic relationships or other arrangements. We may be unable to consummate other potential acquisitions or investments or successfully integrate them with our business, which may slow our ability to expand the range of our proprietary technologies and software productsTo expand the range of our proprietary technologies and software products, we may acquire or make investments in additional complementary businesses, technologies or products if appropriate opportunities arise. We may be unable to identify suitable acquisition or investment candidates at reasonable prices or on reasonable terms, or consummate future acquisitions or investments, each of which could slow our growth strategy. If we do acquire additional companies or make other types of acquisitions, we may have difficulty integrating the acquired products, personnel or technologies. These difficulties could disrupt our ongoing business, distract our management and employees and increase our expenses. Management will have broad discretion as to the use of proceeds from this offering and, as a result, we may not use the proceeds to the satisfaction of our stockholdersOur board of directors and management will have broad discretion in allocating the net proceeds of this offering. They may choose to allocate such proceeds in ways that do not yield a favorable return or are not 13 supported by our stockholders. We have designated only limited specific uses for the net proceeds from this offering. Please see "Use of Proceeds." The concentration of our capital stock ownership with insiders upon the completion of this offering will likely limit your ability to influence corporate mattersThe concentration of ownership of our outstanding capital stock with our directors and executive officers after this offering may limit your ability to influence corporate matters. Prior to the completion of this offering, our directors and executive officers, and their affiliates, beneficially own 67.0% of our outstanding capital stock, and we expect them to remain significant stockholders upon the completion of this offering. As a result, these stockholders, if acting together, will have the ability to control all matters submitted to our stockholders for approval, including the election and removal of directors and the approval of any corporate transactions. We have anti-takeover defenses that could delay or prevent an acquisition of our companyProvisions of our certificate of incorporation and bylaws in effect after completion of this offering and Delaware law could make it more difficult for a third party to acquire us, even if doing so would be beneficial to our stockholders. Please see "Description of Capital Stock." Negotiations between the underwriters and us determined the initial public offering price, but the market price may be less or may be volatile, and you may not be able to resell your shares at or above the initial public offering priceThis initial public offering price may vary from the market price of our common stock after the offering. The market price of our common stock may fluctuate significantly in response to factors, some of which are beyond our control, including: . actual or anticipated fluctuations in our operating results; . changes in market valuations of other technology companies; . conditions or trends in the semiconductor industry; . announcements by us or our competitors of significant technical innovations, contracts, acquisitions or partnerships; . additions or departures of key personnel; . any deviations in net revenue or in losses from levels expected by securities analysts; . volume fluctuations, which are particularly common among highly volatile securities of technology related companies; and . sales of substantial amounts of our common stock or other securities in the open marketGeneral political or economic conditions, such as recession or interest rate or currency rate fluctuations in the United States or abroad, also could cause the market price of our common stock to decline. Please see "Underwriting." Our stock price is likely to be extremely volatile as the market for technology companies' stock has recently experienced extreme price and volume fluctuationsVolatility in the market price of our common stock could result in securities class action litigation. Any litigation would likely result in substantial costs and a diversion of management's attention and resources. Despite the strong pattern of operating losses of technology companies, the market demand, valuation and trading prices of these companies have been high. At the same time, the share prices of these companies' stocks have been highly volatile and have recorded lows well below their historical highs. As a result, investors 14 in these companies often buy the stock at very high prices only to see the price drop substantially a short time later, resulting in an extreme drop in value in the stock holdings of these investors. Our stock may not trade at the same levels as other technology stocks. In addition, technology stocks in general may not sustain current market prices. An active public market for our common stock may not developAn active public market for our common stock may not develop or be sustained after this offering. The initial public offering price for the shares has | -0.202557 | 30.50 | 1527.45 | 240.974 | 68114956 | 23.340 | True | 2000 |
| 1 | 8.0 | 45.0 | NaN | 231.418979 | CONWAY | 20.0000 | 0.063 | 40.99 | 10938.82 | False | NASDQ | False | True | Finance | Banking | Other | NaN | NaN | Home BancShares Inc,Conway,AR | 0.155445 | NaN | Stephens Inc | 2145.32 | 15.918 | NaN | 0 | 4 | NaN | 18.0 | NaN | False | NaN | 0 | 4.750750 | 7.0010 | 7.001 | 19.003 | risk factors an investment in our common stock involves risks. before making an investment decision, you should carefully consider the risks described below, together with our consolidated financial statements and the related notes and the other information included in this prospectus. the discussion below presents material risks associated with an investment in our common stock. if any of the following risks actually occur, our business, financial condition and results of operations could be harmed. in such a case, the trading price of our common stock could decline, and you may lose all or part of your investment. the risks discussed below also include forward-looking statements, and our actual results may differ substantially from those discussed in these forward-looking statements. see cautionary noteregarding forward-looking statements. risks related to our businessour decisions regarding credit risk could be inaccurate and our allowance for loan losses may be inadequate, which would materially and adversely affect our business, financial condition, results of operations and future prospects. management makes various assumptions and judgments about the collectibility of our loan portfolio, including the creditworthiness of our borrowers and the value of the real estate and other assets serving as collateral for the repayment of our secured loans. we maintain an allowance for loan losses that we consider adequate to absorb future losses which may occur in our loan portfolio. in determining the size of the allowance, we analyze our loan portfolio based on our historical loss experience, volume and classification of loans, volume and trends in delinquencies and non-accruals, national and local economic conditions, and other pertinent information. as of march31, 2006, our allowance for loan losses was approximately $24.4million, or 1.96% of our total loans receivable. if our assumptions are incorrect, our current allowance may be insufficient to cover future loan losses, and increased loan loss reserves may be needed to respond to different economic conditions or adverse developments in our loan portfolio. in addition, federal and state regulators periodically review our allowance for loan losses and may require us to increase our allowance for loan losses or recognize further loan charge-offs based on judgments different than those of our management. any increase in our allowance for loan losses or loan charge-offs could have a negative effect on our operating results.because we have a high concentration of loans secured by real estate, a downturn in the real estate market could result in losses and materially and adversely affect business, financial condition, results of operations and future prospects. a significant portion of our loan portfolio is dependent on real estate. as of march31, 2006, approximately 82.2% of our loans had real estate as a primary or secondary component of collateral. the real estate collateral in each case provides an alternate source of repayment in the event of default by the borrower and may deteriorate in value during the time the credit is extended. an adverse change in the economy affecting values of real estate generally or in our primary markets specifically could significantly impair the value of our collateral and our ability to sell the collateral upon foreclosure. furthermore, it is likely that we would be required to increase our provision for loan losses. if we are required to liquidate the collateral securing a loan to satisfy the debt during a period of reduced real estate values or to increase our allowance for loan losses, our profitability and financial condition could be adversely impacted.because we have a concentration of exposure to a number of individual borrowers, a significant loss on any of those loans could materially and adversely affect our business, financial condition, results of operations, and future prospects. we have a concentration of exposure to a number of individual borrowers. under applicable law, each of our bank subsidiaries is generally permitted to make loans to one borrowing relationship up to 20% of their respective capital in the case of our arkansas bank subsidiaries, and 15% of capital (25% on secured loans) in the case of our florida bank subsidiary. historically, when our bank subsidiaries have lending relationships that exceed their individual loan to one borrower limitation, the overline, or amount in excess of the subsidiarybanks legal lending limit, is participated to our other bank subsidiaries. as a result, on a consolidated basis we may have aggregate exposure to individual or related borrowers in excess of each individual bank subsidiarys legal lending limit. as of march31, 2006, the aggregate legal lending limit of our bank subsidiaries for secured loans was approximately $34.4million. currently, our board of directors has established an in-house consolidated lending limit of $16.0million to any one borrowing relationship without obtaining the approval of our chairman and our vice chairman. as of march31, 2006, we had 11 borrowing relationships where we had a commitment to loan in excess of $10.0million, with the aggregate amount of those commitments totaling approximately $180.0million. the largest of those commitments to one borrowing relationship was $27.3million, which is 16.1% of our consolidated shareholders equity. given the size of these loan relationships relative to our capital levels and earnings, a significant loss on any one of these loans could materially and adversely affect our business, financial condition, results of operations, and future prospects.the unexpected loss of key officers may materially and adversely affect our business, financial condition, results of operations and future prospects. our success depends significantly on our executive officers, especially john w. allison, ron w. strother, randy e. mayor, and on the presidents of our bank subsidiaries. our bank subsidiaries, in particular, rely heavily on their management teams relationships in their local communities to generate business. because we do not have employment agreements or non-compete agreements with our employees, our executive officers and bank presidents are free to resign at any time and accept an employment offer from another company, including a competitor. the loss of services from a member of our current management team may materially and adversely affect our business, financial condition, results of operations and future prospects.our growth and expansion strategy may not be successful and our market value and profitability may suffer. growth through the acquisition of banks, de novo branching, and the organization of new banks represents an important component of our business strategy. although we have no present plans to acquire any financial institution or financial services provider, any future acquisitions we might make will be accompanied by the risks commonly encountered in acquisitions. these risks include, among other things: credit risk associated with the acquired banks loans and investments; difficulty of integrating operations and personnel;and potential disruption of our ongoing business. we expect that competition for suitable acquisition candidates may be significant. we may compete with other banks or financial service companies with similar acquisition strategies, many of which are larger and have greater financial and other resources. we cannot assure you that we will be able to successfully identify and acquire suitable acquisition targets on acceptable terms and conditions. in addition to the acquisition of existing financial institutions, we plan to continue de novo branching, and we may consider the organization of new banks in new market areas. we do not, however, have any current plans to organize a new bank. de novo branching and any acquisition or organization of a new bank carries with it numerous risks, including the following: the inability to obtain all required regulatory approvals; significant costs and anticipated operating losses associated with establishing a de novo branch or a new bank; the inability to secure the services of qualified senior management; the local market may not accept the services of a new bank owned and managed by a bank holding company headquartered outside of the market area of the new bank; the inability to obtain attractive locations within a new market at a reasonable cost;and the additional strain on management resources and internal systems and controls. we cannot assure that we will be successful in overcoming these risks or any other problems encountered in connection with acquisitions, de novo branching and the organization of new banks. our inability to overcome these risks could have an adverse effect on our ability to achieve our business strategy and maintain our market value and profitability. we expect to continue to grow our assets and deposits, the products and services we offer, and the scale of our operations, generally, both internally and through acquisitions. if we continue to grow rapidly, we may not be able to control costs and maintain our asset quality. our ability to manage our growth successfully will depend on our ability to maintain cost controls and asset quality while attracting additional loans and deposits on favorable terms. if we grow too quickly and are not able to control costs and maintain asset quality, this rapid growth could materially and adversely affect our financial performance.there may be undiscovered risks or losses associated with our acquisitions of bank subsidiaries which would have a negative impact upon our future income. our growth strategy includes strategic acquisitions of bank subsidiaries. we acquired three bank subsidiaries in 2005, and will continue to consider strategic acquisitions, with a primary focus on arkansas and southwestern florida. in most cases, our acquisition of a bank includes the acquisition of all of the target banks assets and liabilities, including its loan portfolio. there may be instances when we, under our normal operating procedures, may find after the acquisition that there may be additional losses or undisclosed liabilities with respect to the assets and liabilities of the target bank, and, with respect to its loan portfolio, that the ability of a borrower to repay a loan may have become impaired, the quality of the value of the collateral securing a loan may fall below our standards, or the allowance for loan losses may not be adequate. one or more of these factors might cause us to have additional losses or liabilities, additional loan charge-offs, or increases in allowances for loan losses, which would have a negative impact upon our future income.an economic downturn, natural disaster or act of terrorism, especially one affecting our market areas, could adversely affect our business, financial condition, results of operations and future prospects. our business is affected by prevailing economic conditions in the united states, including inflation and unemployment rates, but is particularly subject to the local economies in arkansas, the florida keys and southwestern florida. our relatively small size and our geographic concentration expose us to greater risk of unfavorable local economic conditions than the larger national or regional banks in our market areas. adverse changes in local economic factors, such as population growth trends, income levels, deposits and housing starts, may adversely affect our operations. we are at risk of natural disaster or acts of terrorism, even if our market areas are not primarily affected. our florida market, in particular, is subject to risks from hurricanes, which may damage or dislocate our facilities, damage or destroy collateral, adversely affect the livelihood of borrowers or otherwise cause significant economic dislocation in areas we serve. if and when economic conditions deteriorate, either in our local market areas or nationwide, we may experience a reduction in the demand for our products and services and deterioration in the quality of our loan portfolio and consequently have a material and adverse effect on our business, financial condition, results of operations and future prospects.competition from other financial institutions may adversely affect our profitability. the banking business is highly competitive. we experience strong competition, not only from commercial banks, savings and loan associations, and credit unions, but also from mortgage banking firms, consumer finance companies, securities brokerage firms, insurance companies, money market funds, and other financial institutions operating in or near our market areas. we compete with these institutions both in attracting deposits and in making loans.many of our competitors are much larger national and regional financial institutions. we may face a competitive disadvantage against them as a result of our smaller size and resources and our lack of geographic diversification. we also compete against community banks that have strong local ties. these smaller institutions are likely to cater to the same small and mid-sized businesses that we target and to use a relationship-based approach similar to ours. in addition, our competitors may seek to gain market share by pricing below the current market rates for loans and paying higher rates for deposits. competitive pressures can adversely affect our profitability.our recent results do not indicate our future results, and may not provide guidance to assess the risk of an investment in our common stock. we are unlikely to sustain our historical rate of growth, and may not even be able to expand our business at all. further, our recent growth may distort some of our historical financial ratios and statistics. in the future, we may not have the benefit of several recently favorable factors, such as a strong residential housing market or the ability to find suitable expansion opportunities. various factors, such as economic conditions, regulatory and legislative considerations and competition, may also impede or prohibit our ability to expand our market presence. if we are not able to successfully grow our business, our financial condition and results of operations could be adversely affected.we may not be able to raise the additional capital we need to grow and, as a result, our ability to expand our operations could be materially impaired. federal and state regulatory authorities require us and our bank subsidiaries to maintain adequate levels of capital to support our operations. while we believe that our capital will be sufficient to support our current operations and anticipated expansion, factors such as faster than anticipated growth, reduced earning levels, operating losses, changes in economic conditions, revisions in regulatory requirements, or additional acquisition opportunities may lead us to seek additional capital. our ability to raise additional capital, if needed, will depend on our financial performance and on conditions in the capital markets at that time, which are outside our control. if we need additional capital but cannot raise it on terms acceptable to us, our ability to expand our operations could be materially impaired.we are considered by the federal reserve board to be a source of financial strength for white river bancshares and may be required to support its capital. we hold a 20% ownership interest in white river bancshares, inc., a bank holding company headquartered in fayetteville, arkansas. our minority ownership means that we lack effective power to control the operations of the holding company. we are, nevertheless, considered by the federal reserve board to be a source of financial strength for that holding company. as a result, we may be required to contribute sufficient funds for white river bancshares to meet regulatory capital requirements if it is unable to raise funds from other sources. an obligation to support white river bancshares may be required at times when, in the absence of this federal reserve board policy, we might not be inclined to provide it. as of and for the year ended december31, 2005, white river bancshares had total assets of $184.7million, total shareholders equity of $51.2million, and a net operating loss of $2.7million. the capital ratios for white river bancshares wholly-owned bank subsidiary, signature bank of arkansas, at year-end and the minimum ratios required to be considered well capitalized were: leverage ratio, 24.7% (5.0% required); tier1 capital ratio, 27.8% (6.0% required); and total risk-based capital ratio, 29.0% (10.0% required). we may be unable to, or choose not to, pay dividends on our common stock. although we have paid a quarterly dividend on our common stock since the second quarter of 2003 and expect to continue this practice, we cannot assure you of our ability to continue. our ability to pay dividends depends on the following factors, among others: we may not have sufficient earnings since our primary source of income, the payment of dividends to us by our bank subsidiaries, is subject to federal and state laws that limit the ability of these banks to pay dividends. federal reserve board policy requires bank holding companies to pay cash dividends on common stock only out of net income available over the past year and only if prospective earnings retention is consistent with the organizations expected future needs and financial condition. before dividends may be paid on our common stock in any year, dividends of $0.25per share must first be paid on our classa preferred stock and $0.57per share on our classb preferred stock. before dividends may be paid on our common stock in any year, payments must be made on our subordinated debentures. our board of directors may determine that, even though funds are available for dividend payments, retaining the funds for internal uses, such as expansion of our operations, is a better strategy. if we fail to pay dividends, capital appreciation, if any, of our common stock may be your sole opportunity for gains on your investment.our directors and executive officers own a significant portion of our common stock and can exert significant control over our business and corporate affairs. our directors and executive officers, as a group, will beneficially own approximately 38.6% of our common stock immediately following this offering. consequently, if they vote their shares in concert, they can significantly influence the outcome of all matters submitted to our shareholders for approval, including the election of directors. the interests of our officers and directors may conflict with the interests of other holders of our common stock, and they may take actions affecting our company with which you disagree.the holders of our subordinated debentures have rights that are senior to those of our shareholders. we have $44.8million of subordinated debentures issued in connection with trust preferred securities. payments of the principal and interest on the trust preferred securities are unconditionally guaranteed by us. the subordinated debentures are senior to our shares of common stock. as a result, we must make payments on the subordinated debentures (and the related trust preferred securities) before any dividends can be paid on our common stock and, in the event of our bankruptcy, dissolution or liquidation, the holders of the debentures must be satisfied before any distributions can be made to the holders of our common stock. we have the right to defer distributions on the subordinated debentures (and the related trust preferred securities) for up to five years, during which time no dividends may be paid to holders of our common stock. risks related to our industryour profitability is vulnerable to interest rate fluctuations and monetary policy. most of our assets and liabilities are monetary in nature, and thus subject us to significant risks from changes in interest rates. consequently, our results of operations can be significantly affected by changes in interest rates and our ability to manage interest rate risk. changes in market interest rates, or changes in the relationships between short-term and long-term market interest rates, or changes in the relationship between different interest rate indices can affect the interest rates charged on interest-earning assets differently than the interest paid on interest-bearing liabilities. this difference could result in an increase in interest expense relative to interest income or a decrease in interest rate spread. in addition to affecting our profitability, changes in interest rates can impact the valuation of our assets and liabilities.as of march31, 2006, our one-year ratio of interest-rate-sensitive assets to interest-rate-sensitive liabilities was 104.1% and our cumulative gap position was 2.3% of total earning assets, resulting in a minimum impact on earnings for various interest rate change scenarios. floating rate loans made up 39.1% of our $1.2billion loan portfolio. in addition, 70.7% of our loans receivable and 81.3% of our time deposits were scheduled to reprice within 12months and our other rate sensitive asset and rate sensitive liabilities composition is subject to change. significant composition changes in our rate sensitive assets or liabilities could result in a more unbalanced position and interest rate changes would have more of an impact to our earnings. our results of operations are also affected by the monetary policies of the federal reserve board. actions by the federal reserve board involving monetary policies could have an adverse effect on our deposit levels, loan demand or business and earnings.we are subject to extensive regulation that could limit or restrict our activities and impose financial requirements or limitations on the conduct of our business, which limitations or restrictions could adversely affect our profitability. we are a registered financial holding company primarily regulated by the federal reserve board. our bank subsidiaries are also primarily regulated by the federal reserve board, the federal deposit insurance corporation, and the arkansas state bank department or florida office of financial regulation. complying with banking industry regulations is costly and may limit our growth and restrict certain of our activities, including payment of dividends, mergers and acquisitions, investments, loans and interest rates charged, interest rates paid on deposits and locations of offices. we are also subject to capital requirements by our regulators. violations of various laws, even if unintentional, may result in significant fines or other penalties, including restrictions on branching or bank acquisitions. recently, banks generally have faced increased regulatory sanctions and scrutiny, particularly under the usa patriot act and statutes that promote customer privacy or seek to prevent money laundering. as regulation of the banking industry continues to evolve, we expect the costs of compliance to continue to increase and, thus, to affect our ability to operate profitably. upon completion of this offering, we will become subject to the many requirements of the securities exchange act of 1934, the sarbanes-oxley act of 2002, and the related rules and regulations promulgated by the securities and exchange commission and nasdaq. these laws and regulations will increase the scope, complexity and cost of our corporate governance, reporting and disclosure practices. although we are accustomed to conducting business in a highly regulated environment, these laws and regulations have different requirements for compliance than we have previously experienced. our expenses for accounting, legal and consulting services will increase because of the new obligations we will face as a public company. in addition, the sudden application of these requirements to our business will result in some cultural adjustments and may strain our management resources. to date, we have not conducted a comprehensive review and confirmation of the adequacy of our existing systems and controls as will be required under section404 of the sarbanes-oxley act, and will not do so until after the completion of this offering. we may discover deficiencies in existing systems and controls. if that is the case, we intend to take the necessary steps to correct any deficiencies. these steps may be costly and strain our resources. a decline in the market price for our common stock may result if we are unable to comply with the sarbanes-oxley act. risks related to this offeringwe have broad discretion in the use of the net proceeds from this offering, and our use of those proceeds may not yield a favorable return on your investment. we will use the net proceeds of this offering for general corporate purposes, which may include, among other things, our working capital needs and providing investments in our bank subsidiaries. we may also use the net proceeds to finance bank acquisitions, though we have no present plans in that regard. thus, ourmanagement has broad discretion over how these proceeds are used and could spend the proceeds in ways with which you may not agree. we may not invest the proceeds of this offering effectively or in a manner that yields a favorable (or any) return on our common stock, and consequently, this could result in financial losses that could have a material adverse effect on our business or cause the price of our common stock to decline.there has been no prior active trading market for our common stock. we cannot assure you that an active public trading market will develop after the offering and, even if it does, our stock price may trade below the public offering price. there has been no public market for our common stock prior to this offering. an active trading market for our common stock may never develop or be sustained, which could affect your ability to sell your shares. even if a market develops for our common stock after the offering, the market price of our common stock may experience significant volatility. factors that may affect the price of our common stock include the depth and liquidity of the market for our common stock, investor perception of our financial strength, conditions in the banking industry such as credit quality and monetary policies, and general economic and market conditions. our quarterly operating results, changes in analysts earnings estimates, changes in general conditions in the economy or financial markets or other developments affecting us could cause the market price of our common stock to fluctuate substantially. in addition, the initial public offering price has been determined through negotiations between us and the underwriters, and may bear no relationship to the price at which the common stock will trade upon completion of the offering.investors in this offering will experience immediate and substantial dilution. purchasers in this offering will experience immediate dilution to the extent of the difference between the initial public offering price and the net tangible book value per share of our common stock. this dilution is estimated to be $8.36 per share, based on the initial offering price of $18.00 per share and our pro forma net tangible book value of $9.64per share as of march31, 2006. this per-share dilution takes into account the conversion to common stock of our outstanding shares of classa preferred stock and classb preferred stock, as it is our intent to effect those conversions as soon as practicable after the offering is completed. to the extent we raise additional capital by issuing equity securities in the future, our shareholders may experience additional dilution. our board of directors may determine, from time to time, a need to obtain additional capital through the issuance of additional shares of common stock or other securities. we may issue additional securities at prices or on terms less favorable than or equal to the public offering price and terms of this offering.the ability of our insiders or the holders of our classa and classb preferred stock to sell substantial amounts of common stock after this offering may depress the market price of our common stock or cause it to decline. there are three potentially significant sources of shares of our common stock that may come on the market after this offering: our directors and executive officers will beneficially own approximately 38.6% of our common stock immediately after this offering. although they are subject to lock-up agreements with our underwriters, which generally prevent them from selling their shares within 180days after the offering, the underwriters may release them from those obligations. in any event, after the lock-up agreements expire, approximately 6.7million additional shares of our common stock could become tradable by our directors and executive officers. we intend to require that all of the outstanding shares of our classa preferred stock be converted to common stock as soon as practicable after june6, 2006, the first date on which we can require conversion of those shares. we also intend, as soon as practicable after this offering, to require that our classb preferred stock be converted to common stock. conversion of our classa preferred stock and classb preferred stock will result in approximately 2,159,921shares of our common stock being issued. approximately 80,720additional shares of our common stock may be issued upon exercise of outstanding preferred stock options and the subsequent conversion to common stock of the preferred shares issued. most of the holders of the newly issued shares of common stock will be eligible immediately to sell their shares. we intend to register all common stock that we may issue upon exercise of outstanding options under our 2006 stock option and performance incentive plan. once we register these shares, they can be sold in the public market upon issuance, subject to restrictions under the securities laws and, if applicable, the lock-up agreements described above. as of march31, 2006, stock options to purchase968,244shares of our common stock had been granted under this plan, of which 481,224 are presently exercisable. sales of a significant number of shares of our common stock after this offering, or the expectation that these sales may occur, could depress the market price of our common stock. | 0.007266 | 17.09 | 1257.93 | 2190.648 | 45000000 | 142.890 | False | 2006 |
| 2 | 9.0 | 247.1 | NaN | 452.480993 | BOISE | 26.1500 | 0.094 | 64.26 | 13712.21 | False | NYSE | False | True | Other | Construction Materials | Other | 615284.0 | 247058826.0 | Boise Cascade Co | 0.273154 | 3750588.0 | Bank of America Merrill Lynch\nGoldman Sachs & Co\nDeutsche Bank Securities Inc\nJP Morgan & Co Inc\nWells Fargo Securities LLC | 3143.18 | 116.936 | 15.0 | 77 | 8 | 3.0 | 21.0 | NaN | True | 615284.0 | 0 | 3.625500 | 8.7510 | 9.001 | 29.004 | risk factors investing in our common stock involves a high degree of risk. you should carefully consider the risk factors set forth below as well as the other information contained in this prospectus before investing in our common stock. any of the following risks could materially and adversely affect our business, financial condition and results of operations. in such case, you may lose all or part of your original investment. risks relating to our businessmany of the products we manufacture or purchase and resell are commodities whose price is determined by the market's supply and demand for such products, and the markets in which we operate are cyclical and competitive. the depressed state of the housing, construction and home improvement markets could continue to adversely affect demand and pricing for our products. many of the building products we produce or distribute, including osb, plywood, lumber and particleboard, are commodities that are widely available from other manufacturers or distributors with prices and volumes determined frequently in an auction market, based on participants' perceptions of short-term supply and demand factors. at times, the price for any one or more of the products we produce may fall below our cash production costs, requiring us to either incur short-term losses on product sales or cease production at one or more of our manufacturing facilities. therefore, our profitability with respect to these commodity products depends, in significant part, on managing our cost structure, particularly raw materials and labor, which represent the largest components of our operating costs. commodity wood product prices could be volatile in response to operating rates and inventory levels in various distribution channels. commodity price volatility affects our distribution business, with falling price environments generally causing reduced revenues and margins, resulting in substantial declines in profitability and possible net losses. historically, demand for the products we manufacture, as well as the products we purchase and distribute, has been closely correlated with new residential construction in the united states and, to a lesser extent, light commercial construction and residential repair and remodeling activity. new residential construction activity remained substantially below average historical levels during 2012 and so did demand for many of the products we manufacture and distribute. there is significant uncertainty regarding the timing and extent of any recovery in such construction activity and resulting product demand levels. demand for new residential construction is influenced by seasonal weather factors, mortgage availability and rates, unemployment levels, household formation rates, domestic population growth, immigration rates, residential vacancy and foreclosure rates, demand for second homes, existing home prices, consumer confidence and other general economic factors. wood products industry supply is influenced primarily by price-induced changes in the operating rates of existing facilities but is also influenced over time by the introduction of new product technologies, capacity additions and closures, restart of idled capacity and log availability. the balance of wood products supply and demand in the united states is also heavily influenced by imported products, principally from canada. we have very limited control of the foregoing, and as a result, our profitability and cash flow may fluctuate materially in response to changes in the supply and demand balance for our primary products.our industry is highly competitive. if we are unable to compete effectively, our sales, operating results and growth strategies could be negatively affected. the markets for the products we manufacture in our wood products segment are highly competitive. our competitors range from very large, fully integrated forest and building products firms to smaller firms that may manufacture only one or a few types of products. we also compete less directly with firms that manufacture substitutes for wood building products. certain mills operated by our competitors may be lower-cost manufacturers than the mills operated by us. the building products distribution industry that our building materials distribution segment competes in is highly fragmented and competitive, and the barriers to entry for local competitors are relatively low. competitive factors in our industry include pricing and availability of product, service and delivery capabilities, ability to assist customers with problem solving, customer relationships, geographic coverage and breadth of product offerings. also, financial stability is important to suppliers and customers in choosing distributors and allows for more favorable terms on which to obtain products from suppliers and sell products to customers. if our financial condition deteriorates in the future, our support from suppliers may be negatively affected. some of our competitors are larger companies and, therefore, have access to greater financial and other resources than we do. these resources may afford those competitors greater purchasing power, increased financial flexibility and more capital resources for expansion and improvement, which may enable those competitors to compete more effectively than we can.our manufacturing businesses may have difficulty obtaining wood fiber at favorable prices or at all. wood fiber is our principal raw material, which accounted for approximately 43% of the aggregate amount of materials, labor and other operating expenses (excluding depreciation), for our wood products segment in 2012. wood fiber is a commodity and prices have been cyclical historically in response to changes in domestic and foreign demand and supply. foreign demand for timber exports, particularly from china, increased timber costs in the western u.s. in 2010 and 2011 and negatively affected wood products manufacturers in the region. in 2012, china's demand for timber exports from the western u.s. declined from 2011 levels, but in the future we expect that the level of foreign demand for timber exports from the western u.s. will continue to fluctuate based on the economic activity in china and other pacific rim countries, currency exchange rates and the availability of timber supplies from other countries such as canada, russia and new zealand. sustained periods of high timber costs may impair the cost competitiveness of our manufacturing facilities. we currently enjoy the benefit of supply agreements put in place in 2005 following the sale of our timberlands (or successor arrangements), under which we purchase timber at market based prices. for 2012, approximately 33% of our timber was supplied pursuant to agreements assumed by (or replacement master supply agreements with) hancock natural resource group,inc. ("hancock"), the molpus woodlands groupllc ("molpus") and rayonier louisiana timberlands,llc, a timberland real estate investment trust ("rayonier"). the supply agreements with these parties terminate on december31, 2014, subject to additional one-year extensions unless notice is provided to the other party at least six months prior to expiration of the applicable agreement. if a counterparty to these agreements elects not to continue these agreements or we are unable to renegotiate these agreements on terms that are acceptable to us, we would need to locate a replacement supplier for our timber requirements, which could include private purchases with other suppliers, open-market purchases and purchases from governmental sources. if we are unable to locate a replacement supplier in a particular region to satisfy our timber needs at satisfactory prices, it could have an adverse effect on our results of operations. in 2012, we purchased approximately 21% of our timber from federal, state and local governments. in certain regions in which we operate, a substantial portion of our timber is purchased from governmental authorities. as a result, existing and future governmental regulation can affect our access to, and the cost of, such timber. future domestic or foreign legislation and litigation concerning the use of timberlands, timber harvest methodologies, forest road construction and maintenance, the protection of endangered species, forest-based carbon sequestration, the promotion of forest health and the response to and prevention of catastrophic wildfires can affect timber and fiber supply from both government and private lands. availability of harvested timber and fiber may be further limited by fire, insect infestation, disease, ice storms, windstorms, hurricanes, flooding and other natural and man-made causes, thereby reducing supply and increasing prices. availability of residual wood fiber for our particleboard operation has been negatively affected by significant mill closures and curtailments that have occurred among solid-wood product manufacturers. future development of wood cellulose biofuel or other new sources of wood fiber demand could interfere with our ability to source wood fiber or lead to significantly higher costs.significant changes in discount rates, actual investment return on pension assets and other factors could affect our earnings, equity and pension contributions in future periods. our earnings may be negatively affected by the amount of income or expense we record for our pension plans. gaap requires that we calculate income or expense for the plans using actuarial valuations. these valuations reflect assumptions relating to financial market and other economic conditions. changes in key economic indicators can change the assumptions. the most significant year-end assumptions used to estimate pension expense are the discount rate and the expected long-term rate of return on plan assets. in addition, we are required to make an annual measurement of plan assets and liabilities, which may result in a significant change to equity through a reduction or increase to "accumulated other comprehensive loss." a decline in the market value of the pension assets will increase our funding requirements. our pension plan liabilities are sensitive to changes in interest rates. as interest rates decrease, the liabilities increase, potentially increasing benefit costs and funding requirements. changes in demographics, including increased numbers of retirements or changes in life expectancy assumptions, may also increase the funding requirements of the obligations related to the pension plans. at december31, 2012, the net underfunded status of our defined benefit pension plans was $192.5million. if the status of our defined benefit plans continues to be underfunded, we anticipate significant future funding obligations, reducing the cash available for our business. for more discussion regarding how our financial statements can be affected by pension plan estimates, see "management's discussion and analysis of financial condition and results of operationscritical accounting estimatespensions."our recent significant capital investments have increased fixed costs, which could negatively affect our profitability. in the past three years, we have completed a number of capital investments, including significantly increasing our outdoor storage acreage and leasing additional warehouse space. in the future, we expect to make further capital investments, primarily related to internal veneer production. these significant capital investments have resulted in increased fixed costs, which could negatively affect our profitability if the housing market does not recover and revenues do not improve to offset our incremental fixed costs.a material disruption at one of our manufacturing facilities could prevent us from meeting customer demand, including the demand from our building materials distribution business, reduce our sales, and/or negatively affect our financial results. any of our manufacturing facilities, or any of our machines within an otherwise operational facility, could cease operations unexpectedly due to a number of events, including but not limited to: equipment failure, particularly a press at one of our major ewp production facilities; fires, floods, earthquakes, hurricanes or other catastrophes; unscheduled maintenance outages; utility and transportation infrastructure disruptions; labor difficulties; other operational problems; or ecoterrorism or threats of ecoterrorism. any downtime or facility damage could prevent us from meeting customer demand for our products and/or require us to make unplanned capital expenditures. if our machines or facilities were to incur significant downtime, our ability to satisfy customer requirements would be impaired, resulting in lower sales and net income. because approximately 39% of our wood products sales in the ltm period, including approximately 73% of our ewp sales, were to our building materials distribution business, a material disruption at our wood products facilities would also negatively impact our building materials distribution business. we are therefore exposed to a larger extent to the risk of disruption to our wood products manufacturing facilities due to our vertical integration and the resulting impact on our building materials distribution business. in addition, a number of our suppliers are subject to the manufacturing facility disruption risks noted above. our suppliers' inability to produce the necessary raw materials for our manufacturing processes or supply the finished goods that we distribute through our building materials distribution segment may adversely affect our results of operations, cash flows and financial position.adverse conditions may increase the credit risk from our customers. our building materials distribution and wood products segments extend credit to numerous customers who are heavily exposed to the effects of downturns in the housing market. unfavorable housing market conditions could result in financial failures of one or more of our significant customers, which could impair our ability to fully collect receivables from such customers and negatively affect our operating results, cash flow and liquidity.a significant portion of our sales are concentrated with a relatively small number of customers. for the year ended december31, 2012, our top ten customers represented approximately 29% of our sales, with one customer accounting for approximately 11% of sales. at december31, 2012 and june30, 2013, receivables from such customer accounted for approximately 14% and 16%, respectively, of total receivables. although we believe that our relationships with our customers are strong, the loss of one or more of these customers could have a material adverse effect on our operating results, cash flow and liquidity.our ability to service our indebtedness or to fund our other liquidity needs is subject to various risks. our ability to make scheduled payments on our indebtedness and fund other liquidity needs depends on and is subject to our financial and operating performance, which in turn is affected by general and regional economic, financial, competitive, business and other factors, including the availability of financing in the banking and capital markets as well as the other risks described herein. in particular, demand for our products correlates to a significant degree to the level of residential construction activity in north america, which historically has been characterized by significant cyclicality. over the last several years, housing starts remained below historical levels. this reduced level of building was caused, in part, by an increase in the inventory of homes for sale, a more restrictive mortgage market, and a slowed economy. there can be no assurance as to when or if the housing market will rebound to historical levels. we have experienced significant losses from operations and used significant cash for operating activities in recent periods. we cannot assure you that our business will generate sufficient cash flows from operations or that future borrowings will be available to us in an amount sufficient to enable us to service our debt or to fund our other liquidity needs. if we are unable to service our debt obligations or to fund our other liquidity needs, we could be forced to curtail our operations, reorganize our capital structure, or liquidate some or all of our assets.we are subject to environmental regulation and environmental compliance expenditures, as well as other potential environmental liabilities. our businesses are subject to a wide range of general and industry-specific environmental laws and regulations, particularly with respect to air emissions, wastewater discharges, solid and hazardous waste management and site remediation. enactment of new environmental laws or regulations, including those aimed at addressing greenhouse gas emissions, or changes in existing laws or regulations might require significant expenditures or restrict operations. from time to time, legislative bodies and environmental regulatory agencies may promulgate new regulatory programs imposing significant incremental operating costs or capital costs on us. in december 2012, the u.s. environmental protection agency (the "epa") finalized a revised series of four regulations commonly referred to collectively as boiler mact, which are intended to regulate the emission of hazardous air pollutants from industrial boilers. facilities in our wood products segment will be subject to one or more of these regulations and must be in compliance with the applicable rules by early 2016. we are currently undertaking a complete review of the revised rules to assess how they will affect our operations. even with the revised rules finalized, considerable uncertainty still exists, as there will likely be legal challenges to the final rules from industry and/or environmental organizations. notwithstanding that uncertainty, we are proceeding with efforts to analyze the applicability and requirements of the regulations, including the capital and operating costs required to comply. at this time, we cannot accurately forecast the capital or operating cost changes that may result from compliance with the regulations. as an owner and operator of real estate, we may be liable under environmental laws for the cleanup of past and present spills and releases of hazardous or toxic substances on or from our properties and operations. we could be found liable under these laws whether or not we knew of, or were responsible for, the presence of such substances. in some cases, this liability may exceed the value of the property itself. we may be unable to generate funds or other sources of liquidity and capital to fund unforeseen environmental liabilities or expenditures to the extent we are not indemnified by third parties. for example, in connection with the completion of our acquisition of the forest products and paper assets of officemax in 2004 (the "forest products acquisition"), officemax is generally obligated to indemnify us for hazardous substance releases and other environmental violations that occurred prior to the forest products acquisition. however, officemax may not have sufficient funds to fully satisfy its indemnification obligations when required, and in some cases, we may not be contractually entitled to indemnification by officemax. in addition, in connection with the sale of our paper and packaging& newsprint assets in 2008, boiseinc. and its affiliates assumed any and all environmental liabilities arising from our ownership or operation of the assets and businesses sold to them, and we believe we are entitled to indemnification by them from third-party claims in the event they fail to fully discharge any such liabilities on the basis of common law rules of indemnification. however, boiseinc. may not have sufficient funds to discharge its obligations when required or to indemnify us from third-party claims arising out of any such failure. for additional information on how environmental regulation and compliance affects our business, see "management's discussion and analysis of financial condition and results of operationsenvironmental." labor disruptions or increased labor costs could adversely affect our business. as of october13, 2013, we had approximately 5,210 employees. approximately 27% of these employees work pursuant to collective bargaining agreements. as of october13, 2013, we had nine collective bargaining agreements. two agreements, covering 375 employees at our facility in florien, louisiana, and 283 employees at our facility in oakdale, louisiana, expired on july15, 2013 but have been indefinitely extended by the parties, subject to either party submitting a ten-day written notice to terminate. we expect these two agreements to be negotiated together. if these agreements are not renewed or extended upon their expiration, we could experience a material labor disruption or significantly increased labor costs, which could prevent us from meeting customer demand or reduce our sales and profitability.if our long-lived assets become impaired, we may be required to record noncash impairment charges that could have a material impact on our results of operations. we review the carrying value of long-lived assets for impairment when events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. should the markets for our products deteriorate further or should we decide to invest capital differently than as expected, or should other cash flow assumptions change, it is possible that we will be required to record noncash impairment charges in the future with respect to the investments we have completed and expect to complete, which could have a material impact on our results of operations.the terms of our revolving credit facility and the indenture governing our senior notes restrict, and covenants contained in agreements governing indebtedness in the future may restrict, our ability to operate our business and to pursue our business strategies. our revolving credit facility and the indenture governing our senior notes contain, and any future indebtedness of ours may contain, a number of restrictive covenants that impose customary operating and financial restrictions on us. our revolving credit facility and the indenture governing our senior notes limit our ability and the ability of our restricted subsidiaries, among other things, to: incur additional debt; declare or pay dividends, redeem stock, or make other distributions to stockholders; make investments; create liens or use assets as security in other transactions; merge or consolidate, or sell, transfer, lease or dispose of substantially all of our assets; enter into transactions with affiliates; sell or transfer certain assets; and make prepayments on our senior notes and subordinated indebtedness. in addition, our revolving credit facility provides that if an event of default occurs or excess availability under our revolving credit facility drops below a threshold amount equal to the greater of 10% of the aggregate commitments under our revolving credit facility or $35million (and until such time as excess availability for two consecutive fiscal months exceeds that threshold amount and no event of default has occurred and is continuing), we will be required to maintain a monthly minimum fixed coverage charge ratio of 1.0:1.0, determined on a trailing twelve-month basis. our failure to comply with any of these covenants could result in an event of default which, if not cured or waived, could result in the acceleration of all of our indebtedness. we may be unable to attract and retain key management and other key employees. our key managers are important to our success and may be difficult to replace because they have an average of 30years of experience in forest products manufacturing and building materials distribution. while our senior management team has considerable experience, certain members of our management team are nearing or have reached normal retirement age. the failure to successfully implement succession plans could result in inadequate depth of institutional knowledge or inadequate skill sets, which could adversely affect our business.our growth strategy includes pursuing strategic acquisitions. we may be unable to integrate efficiently acquired operations or complete successfully potential acquisitions. we may not be able to integrate the operations of acquired businesses, including chester wood productsllc and moncure plywoodllc, in an efficient and cost-effective manner or without significant disruption to our existing operations or realize expected synergies. acquisitions involve significant risks and uncertainties, including uncertainties as to the future financial performance of the acquired business, difficulties integrating acquired personnel into our business, the potential loss of key employees, customers or suppliers, difficulties in integrating different computer and accounting systems, exposure to unknown or unforeseen liabilities of acquired companies, and the diversion of management attention and resources from existing operations. in the future, we may be unable to complete successfully potential acquisitions due to multiple factors, such as issues related to regulatory review of the proposed transactions. we may also be required to incur additional debt in order to consummate acquisitions, which debt may be substantial and may limit our flexibility in using our cash flow from operations. our failure to integrate future acquired businesses effectively or to manage other consequences of our acquisitions could adversely affect our financial condition, operating results and cash flows.we rely on boiseinc. for many of our administrative services. in conjunction with the sale of our paper and packaging& newsprint assets in 2008, we entered into an outsourcing services agreement, under which boiseinc. provides a number of corporate staff services to us. these services include information technology, accounting and human resource transactional services. most of the boiseinc. staff that provides these services are providing the same services they provided when they were our employees. on october25, 2013, packaging corporation of america ("pca") acquired all of the outstanding common shares of boiseinc. the outsourcing services agreement remains in place after pca's acquisition of boiseinc. and is currently set to expire on february22, 2015. we cannot be assured that the staff providing such services will remain with pca after the acquisition, or that there will not be a disruption in the continuity or level of service provided. if pca is unwilling or unable to provide services at the same quality levels as those services have been provided in the past, or we are unable to develop and implement effective alternatives, if necessary, our business and compliance activities and results of operations could be substantially and negatively affected. risks relating to ownership of our common stockthe price of our common stock may fluctuate significantly, and you could lose all or part of your investment. volatility in the market price of our common stock may prevent you from being able to sell your shares at or above the price you paid for them. the market price for our common stock could fluctuate significantly for various reasons, including: our operating and financial performance and prospects; our quarterly or annual earnings or those of other companies in our industry; the public's reaction to our press releases, our other public announcements and our filings with the sec; changes in, or failure to meet, earnings estimates or recommendations by research analysts who track our common stock or the stock of other companies in our industry; the failure of research analysts to cover our common stock; general economic, industry and market conditions; strategic actions by us, our customers or our competitors, such as acquisitions or restructurings; new laws or regulations or new interpretations of existing laws or regulations applicable to our business; changes in accounting standards, policies, guidance, interpretations or principles; material litigation or government investigations; changes in general conditions in the u.s. and global economies or financial markets, including those resulting from war, incidents of terrorism or responses to such events; changes in key personnel; sales of common stock by us, our principal stockholder or members of our management team; termination of lock-up agreements with our management team and principal stockholder; the granting or exercise of employee stock options; volume of trading in our common stock; and the impact of the facts described elsewhere in "risk factors." in addition, in recent years, the stock market has regularly experienced significant price and volume fluctuations. this volatility has had a significant impact on the market price of securities issued by many companies, including companies in our industry. the changes frequently appear to occur without regard to the operating performance of the affected companies. hence, the price of our common stock could fluctuate based upon factors that have little or nothing to do with us and these fluctuations could materially reduce our share price.the requirements of being a public company have increased certain of our costs and require significant management focus. we completed our initial public offering in february 2013 and boise cascade common stock is listed on the nyse. as a public company, our legal, accounting and other expenses associated with compliance-related and other activities have increased. for example, in connection with our initial public offering, we created new board committees and appointed an additional independent director to comply with the corporate governance requirements of the nyse. costs to obtain director and officer liability insurance contribute to our increased costs. as a result of the associated liability, it may be more difficult for us to attract and retain qualified persons to serve on our board of directors or as executive officers. advocacy efforts by stockholders and third parties may also prompt even more changes in governance and reporting requirements, which could further increase our compliance costs. until certain applicable phase-in periods expire, we are exempt from certain corporate governance requirements since we were a "controlled company" within the meaning of the nyse rules and, as a result, you will not have the protections afforded by these corporate governance requirements. until july30, 2013, when bc holdings ceased to hold a majority of our common stock, we were considered a "controlled company" for the purposes of the nyse listing requirements. under these rules, a company of which more than 50% of the voting power is held by a group is a "controlled company" and may elect not to comply with certain nyse corporate governance requirements, including the requirements that our board of directors, our compensation committee and our corporate governance and nominating committee meet the standard of independence established by those corporate governance requirements. we have one year from the date we ceased to be a controlled company to fully comply with all of nyse's corporate governance requirements. accordingly, you may not have the same protections afforded to stockholders of companies that are subject to all of the nyse's corporate governance requirements until the applicable phase-in periods expire.our significant stockholder, bc holdings, has the ability to influence corporate activities and its interests may not coincide with yours. after the consummation of this offering, bc holdings will beneficially own approximately 22.4% of our outstanding common stock, assuming the underwriters do not exercise their option to purchase additional shares. if the underwriters exercise in full their option to purchase additional shares, bc holdings will beneficially own approximately 19.8% of our outstanding common stock. as a result of its ownership, bc holdings (and madison dearborn as its indirect controlling equityholder) has the ability to influence the outcome of matters submitted to a vote of stockholders and, through our board of directors, the ability to influence decision-making with respect to our business direction and policies. matters over which bc holdings, directly or indirectly, has the ability to influence decision-making include: election of directors; mergers and other business combination transactions, including proposed transact | 0.105902 | 27.21 | 1492.56 | 1104.186 | 247058826 | 3273.496 | False | 2013 |
| 3 | 6.0 | 36.0 | 2000.0 | 48.110260 | SANTA CLARA | 13.8125 | 0.434 | 97.32 | 10727.18 | False | NASDQ | True | False | Business Equipment -- Computers, Software, and Electronic Equipment | Electronic Equipment | Business Equipment, Telephone and Television Transmission | 18682.0 | 26640000.0 | Latitude Communications Inc | 0.017135 | 377400.0 | CS First Boston Corp | 2561.61 | 7.372 | 14.0 | 3 | 11 | 6.0 | 12.0 | 0.000000 | False | 18682.0 | 0 | 7.409818 | 9.0010 | 9.001 | 81.508 | RISK FACTORS You should carefully consider the following risks in addition to the remainder of this prospectus before purchasing our common stock. The risks and uncertainties described below are intended to highlight risks that are specific to us and are not the only ones that we face. Additional risks and uncertainties, such as those that generally apply to business enterprises in our industry, also may impair our business operations. Our future profitability is uncertain due to our limited operating historyWe have a limited operating history and cannot assure you that our revenue will continue to grow or that we will maintain profitability in the future. Our prospects must be considered in light of the risks and uncertainties encountered by companies in the early stages of development. We rely substantially on sales of our MeetingPlace products, which have limited market acceptanceIn addition, we are unable to predict our future product development, sales and marketing, and administrative expenses. To the extent that these expenses increase, we will need to increase revenue to sustain profitability. Our ability to increase revenue and sustain profitability also depends on the other risk factors described in this section. Our operating results may fluctuate significantlyOur operating results are difficult to predict. Our future quarterly operating results may fluctuate and may not meet the expectations of securities analysts or investors. If this occurs, the price of our common stock would likely decline. The factors that may cause fluctuations of our operating results include the following: . changes in our mix of revenues generated from product sales and services; . changes by existing customers in their levels of purchases of our products and services; . changes in our mix of sales channels through which our products and services are sold; and . changes in our mix of domestic and international salesOrders at the beginning of each quarter typically do not equal expected revenue for that quarter. In addition, a significant portion of our orders are received in the last month of each fiscal quarter. If we fail to ship products by the end of a quarter in which the order is received, or if our prospective customers delay their orders or delivery schedules until the following quarter, we may fail to meet our revenue objectives. 6 Our market is highly competitiveBecause of intense market competition, we may not be successful. Currently, our principal competitors include: . major telecommunications carriers that operate service bureaus for voice conferencing, such as AT&T Corp., MCI Worldcom, Inc. and Sprint Corporation; . private branch exchange, or PBX, vendors that sell systems with voice conferencing capabilities, such as Lucent Technologies Inc. and Nortel Networks; . providers of video conferencing systems such as PictureTel Corporation, Pinnacle Systems, Inc. and 8x8, Inc.; and . smaller start-up companies that offer web-based voice and data conferencing productsMany of these companies have longer operating histories, stronger brand names and significantly greater financial, technical, marketing and other resources than we do. These companies also may have existing relationships with many of our prospective customers. In addition, these companies may be able to respond more quickly than we can to new or emerging technologies and changes in customer requirementsIn addition, we expect competition to persist and intensify in the future which could adversely affect our ability to increase sales, penetrate new markets and maintain average selling prices. In the future, we may experience competition from potential competitors that include: . networking companies, such as Cisco Systems, Inc., 3Com Corporation, Lucent Technologies Inc. and Nortel Networks that are focusing on enabling the transmission of voice over the Internet and that may offer voice and data conferencing functionality; and . collaborative software providers, such as Microsoft Corporation and Lotus Development Corporation, that are focusing on data conferencing products and that may in the future incorporate voice conferencing functionality into their products. Our market is in an early stage of development, and our products may not be adoptedIf the market for our integrated voice and data conferencing products fails to grow or grows more slowly than we anticipate, we may not be able to increase revenues or remain profitable. The market for integrated real-time voice and data conferencing is relatively new and rapidly evolving. Our ability to remain profitable depends in large part on the widespread adoption by end users of real-time voice and data conferencingWe will have to devote substantial resources to educate prospective customers about the uses and benefits of our products. In addition, businesses that have invested substantial resources in other conferencing products may be reluctant or slow to adopt our products, which might replace or compete with their existing systems. Our efforts to educate potential customers may not result in our products achieving market acceptance. 7 Rapid technological changes could cause our products to become obsolete or require us to redesign our productsThe market in which we compete is characterized by rapid technological change, frequent new product introductions, changes in customer requirements and emerging industry standards. In particular, we expect that the growth of the Internet and Internet-based telephony applications, as well as general technology trends such as migrations to new operating systems, will require us to adapt our product to remain competitive. This adaptation could be costly and time-consuming. Our products could become obsolete and unmarketable if products using new technologies are introduced and new industry standards emerge. For example, the widespread acceptance of competing technologies, such as video conferencing and the transmission of voice over the Internet, could diminish demand for our current products. As a result, the life cycle of our products is difficult to estimateTo be successful, we will need to develop and introduce new products and product enhancements that respond to technological changes or evolving industry standards, such as the transmission of voice over the Internet, in a timely manner and on a cost effective basis. In addition, our current full care support agreements with our customers require us to deliver two product upgrades per year. We cannot assure you that we will successfully develop these types of products and product enhancements or that our products will achieve broad market acceptance. Our sales cycle is lengthy and unpredictableAny delay in sales of our products could cause our quarterly revenue and operating results to fluctuate. The typical sales cycle of our products is lengthy, generally between six to nine months, unpredictable, and involves significant investment decisions by prospective customers, as well as our education of potential customers regarding the use and benefits of our products. Furthermore, many of our prospective customers have neither budgeted expenses for voice and data conferencing systems nor have personnel specifically dedicated to procurement and implementation of these conferencing systems. As a result, our customers spend a substantial amount of time before purchasing our products in performing internal reviews and obtaining capital expenditure approvals. We cannot be certain that this cycle will not lengthen in the future. The emerging and evolving nature of the real-time voice and data conferencing market may lead to confusion in the market, which may cause prospective customers to postpone their purchase decisions. In addition, general concerns regarding Year 2000 compliance may further delay purchase decisions by prospective customers. If we fail to expand our sales and distribution channels, our business could sufferIf we are unable to expand our sales and distribution channels, we may not be able to increase revenue or achieve market acceptance of our MeetingPlace product. We have recently expanded our direct sales force and plan to recruit additional sales personnel. New sales personnel will require training and take time to achieve full productivity, and there is strong competition for qualified sales personnel in our business. In addition, we believe that our future success is dependent upon establishing successful relationships with a variety of distribution partners. To date, we have entered into agreements with only a small number of these distribution partners. We cannot be certain that 8 we will be able to reach agreement with additional distribution partners on a timely basis or at all, or that these distribution partners will devote adequate resources to selling our products. Furthermore, if our distribution partners fail to adequately market or support our products, the reputation of our products in the market may suffer. In addition, we will need to manage potential conflicts between our direct sales force and third-party reselling efforts. Our ability to expand into international markets is uncertainWe intend to continue to expand our operations into new international markets. In addition to general risks associated with international expansion, such as foreign currency fluctuations and political and economic instability, we face the following risks and uncertainties any of which could prevent us from selling our products in a particular country or harm our business operations once we have established operations in that country: . the difficulties and costs of localizing products for foreign markets, including the development of multilingual capabilities in our MeetingPlace system; . the need to modify our products to comply with local telecommunications certification requirements in each country; and . our lack of a direct sales presence in other countries, our need to establish relationships with distribution partners to sell our products in these markets and our reliance on the capabilities and performance of these distribution partners. If we fail to integrate our products with third-party technology, our sales could sufferOur products are designed to integrate with our customers' data and voice networks, as well as with enterprise applications such as browsers and collaborative software applications. If we are unable to integrate our products with these networks and systems, sales of our products could suffer In addition, we may be required to engage in costly and time-consuming redesigns of our products because of technology enhancements or upgrades of these systems. We may not be able to redesign our products or be certain that any of these redesigns will achieve market acceptance. In addition, we will need to continually modify our products as newer versions of the enterprise applications with which our products integrate are introduced. Our ability to do so largely depends on our ability to gain access to the advanced programming interfaces for these applications, and we cannot assure you that we will have access to necessary advanced programming interfaces in the future. We may experience difficulties managing our expected growthOur recent growth has strained, and we expect that any future growth will continue to strain, our management systems and resources, which could hinder our ability to continue to grow in the future. We may also experience difficulties meeting the demand for our products and services. If we are unable to provide training and support for our products, the implementation process will be longer and customer satisfaction may be lowerWe may not be able to install management information and control systems in an efficient and timely manner, and our current or planned personnel, systems, procedures and controls may not be 9 adequate to support our future operations. Competition for qualified personnel in the San Francisco Bay area, as well as other markets in which we recruit, is extremely intense and characterized by rapidly increasing salaries, which may increase our operating expenses or hinder our ability to recruit qualified candidates. Our business could suffer if we lose the services of our current management teamOur future success depends on the ability of our management to operate effectively, both individually and as a group. If we were to lose the services of any of these key employees we may encounter difficulties finding qualified personnel to replace them In addition, three of our seven executive officers joined us during the past 12 months. Accordingly, our executive officers' ability to function effectively as a management team remains unproven. The loss of our right to use technology licensed to us by third parties could harm our businessWe license technology that is incorporated into our products from third parties, including digital signal processing algorithms and the MeetingPlace server's operating system and relational database. Any interruption in the supply or support of any licensed software could disrupt our operations and delay our sales, unless and until we can replace the functionality provided by this licensed software. Because our products incorporate software developed and maintained by third parties, we depend on these third parties to deliver and support reliable products, enhance their current products, develop new products on a timely and cost-effective basis and respond to emerging industry standards and other technological changes. Any interruption in supply of components from outside manufacturers and suppliers could hinder our ability to ship products in a timely mannerWe rely on third parties to obtain most of the components of the MeetingPlace server and integrate them with other standard components, such as the central processing unit and disk drives. If these third parties are no longer able to supply and assemble these components or are unable to do so in a timely manner, we may experience delays in shipping our products and have to invest resources in finding an alternative manufacturer or manufacture our products internallyIn addition, we obtain key hardware components, including the processors and digital signal processing devices used in the MeetingPlace server, from sole source suppliers. In the past, we have experienced problems in obtaining some of these components in a timely manner from these sources, and we cannot be certain that we will be able to continue to obtain an adequate supply of these components in a timely manner or, if necessary, from alternative sources. If we are unable to obtain sufficient quantities of components or to locate alternative sources of supply, we may experience delays in shipping our products and incur additional costs to find an alternative manufacturer or manufacture our products internally. Our products may suffer from defects, errors or breaches of securitySoftware and hardware products as complex as ours are likely to contain undetected errors or defects, especially when first introduced or when new versions are released. Any errors or defects 10 that are discovered after commercial release could result in loss of revenue or delay in market acceptance, diversion of development resources, damage to our customer relationships or reputation or increased service and warranty cost. Our products may not be free from errors or defects after commercial shipments have begun, and we are aware of instances in which some of our customers have experienced product failures or errorsMany of our customers conduct confidential conferences, and transmit confidential data, using MeetingPlace. Concerns over the security of information sent over the Internet and the privacy of its users may inhibit the market acceptance of our products. In addition, unauthorized users in the past have gained, and in the future may be able to gain, access to our customers' MeetingPlace systems. Any compromise of security could deter people from using MeetingPlace and could harm our reputation and business and result in claims against us. We may be unable to adequately protect our proprietary rights, and we may be subject to infringement claimsUnauthorized parties may copy aspects of our products and obtain and use information that we regard as proprietary, which could cause our business to suffer. Furthermore, the laws of many foreign countries do not protect our intellectual property rights to the same extent as the laws of the United States In the future, we may be subject to legal proceedings and claims for alleged infringement of third party proprietary rights. Any of these claims, even if not meritorious, could result in costly litigation, divert management's attention and resources, or require us to enter into royalty or license agreements which are not advantageous to us. Parties making these claims may be able to obtain injunctive or other equitable relief, which could prevent us from selling our productsDell Computer Corporation has registered the "Latitude" mark for computers in the United States and in other countries. Dell's United States trademark registration and Canadian application have blocked our ability to register the "Latitude Communications" and "Latitude" with logo marks in the United States and the "Latitude Communications" mark in Canada. Since we believe that we have priority of trade name usage in the United States, we have petitioned to cancel Dell's United States registration and opposed its Canadian application. The outcome of these proceedings is uncertain. If Dell's registration for the "Latitude" mark is not canceled or if we are unable to obtain consent from Dell for our registration of our marks, we may not be able to register our marks and would have to rely solely on common law protection for these marks. We cannot assure you that we will be free from challenges of or obstacles to our use or registration of our marks. We are subject to government regulation, and our failure to comply with these regulations could harm our businessOur products are subject to a wide variety of safety, emissions and compatibility regulations imposed by governmental authorities in the United States or in other countries in which we sell our products. If we are unable to obtain necessary approvals or maintain compliance with the regulations of any particular jurisdiction, we may be prohibited from selling our products in that territory. In addition, to sell our products in many international markets, we are required to obtain certifications that are specific to the local telephony infrastructure. 11 We may be subject to claims related to Year 2000 issues, and Year 2000 concerns could adversely affect our revenuesMany currently installed computer systems are not capable of distinguishing 21st century dates from 20th century dates. As a result, beginning on January 1, 2000, computer systems and software used by many companies and organizations in a wide variety of industries, including technology, transportation, utilities, finance and telecommunications, will produce erroneous results or fail unless they have been modified or upgraded to process date information correctly. Year 2000 compliance efforts may involve significant time and expense, and uncorrected problems could materially adversely affect our business, financial condition and operating results. We may face claims based on Year 2000 issues arising from the integration of multiple products within an overall system. We may also experience reduced sales of our products as potential customers reduce their budgets for voice and data conferencing products due to increased expenditures on their own Year 2000 compliance efforts. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Year 2000 Readiness Disclosure." Our stock price may be volatileWe expect that the market price of our common stock will fluctuate as a result of variations in our quarterly operating results. These fluctuations may be exaggerated if the trading volume of our common stock is low. In addition, due to the technology-intensive and emerging nature of our business, the market price of our common stock may rise and fall in response to: . announcements of technological or competitive developments; . acquisitions or strategic alliances by us or our competitors; or . the gain or loss by us of significant orders. Our executive officers and directors and their affiliates own a large percentage of our voting stock and could control the voting power of the common stockOn completion of this offering, executive officers and directors and their affiliates will beneficially own, in the aggregate, approximately 58% of our outstanding common stock. As a result, these stockholders will be able to exercise control over all matters requiring stockholder approval, including the election of directors and approval of significant corporate transactions. This concentration of ownership may delay, deter or prevent transactions that would result in the change of control, which in turn could reduce the market price of our common stock. Future sales of our common stock may depress our stock priceAfter this offering, we will have outstanding 18,581,657 shares of common stock. Sales of a substantial number of shares of common stock in the public market following this offering could materially adversely affect the market price of our common stock. All the shares sold in this offering will be freely tradable. Upon the expiration of arrangements between our stockholders and Latitude or the underwriters in which our stockholders have agreed not to sell or dispose of their Latitude common stock, all of the remaining 15,581,657 shares of common stock outstanding after this offering will be eligible for sale in the public market 180 days following the date of this prospectus. Of these shares, 11,682,572 shares will be subject to volume limitations under federal securities laws. 12 If our stockholders sell substantial amounts of common stock, including shares issued upon the exercise of outstanding options and warrants, in the public market, the market price of our common stock could fall. See "Shares Eligible for Future Sale" and "Underwriting." This prospectus contains forward-looking statements that involve risks and uncertaintiesWe have made forward-looking statements under the sections entitled "Prospectus Summary," "Risk Factors," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business." These statements involve risks and uncertainties that may cause our business or financial results to materially differ from those expressed by the forward-looking statements We have identified forward-looking statements by using terms such as "may," "will," "should," "expects," "plans," "anticipates," "believes," "estimates," "predicts," "potential," or "continue" or the negative of these terms or other comparable terminologyWe are under no duty to update any of the forward-looking statements after the date of this prospectus to conform these statements to actual results You should rely only on the information contained in this document or to which we have referred you. We have not authorized anyone to provide you with information that is different. This document may only be used where it is legal to sell these securities. The information in this document may only be accurate on the date of this document. 13 | 0.122756 | 15.86 | 1358.82 | 60.054 | 26640000 | 33.042 | True | 1999 |
| 4 | NaN | 50.0 | NaN | 80.601321 | WATERTOWN | 18.1500 | -0.818 | NaN | 17640.17 | True | NASDQ | True | True | Healthcare, Medical Equipment, and Drugs | Pharmaceutical Products | Healthcare, Medical Equipment, and Drugs | 114399.8 | 50000000.0 | Syros Pharmaceuticals Inc | 0.002420 | NaN | Cowen & Co\nPiper Jaffray Cos\nJMP Securities LLC | 4834.93 | -47.743 | 17.0 | 0 | 4 | 14.0 | 12.5 | 0.588391 | False | 114399.8 | 1 | 3.625500 | 7.2510 | 7.501 | 14.502 | risk factors investing in our common stock involves a high degree of risk. before you decide to invest in our common stock, you should carefully consider the risks described below, together with the other information contained in this prospectus, including our consolidated financial statements and the related notes included elsewhere in this prospectus. if any of the following risks actually occurs, our business, financial condition, results of operations and future growth prospects could be harmed. in these circumstances, the market price of our common stock could decline, and you may lose all or part of your investment. risks related to our financial position and need for additional capitalwe have incurred significant losses since inception, expect to incur significant and increasing losses for at least the next several years, and may never achieve or maintain profitability. we have incurred significant annual net operating losses in every year since our inception. we expect to continue to incur significant and increasing net operating losses for at least the next several years. our net losses were $13.4million and $29.8million for the years ended december31, 2014 and 2015, respectively, and $10.6million for the three months ended march31, 2016. as of march31, 2016, we had an accumulated deficit of $64.1million. we have not generated any revenues from product sales, have not completed the development of any product candidate and may never have a product candidate approved for commercialization. we have financed our operations to date primarily through private placements of our preferred stock. we have devoted substantially all of our financial resources and efforts to research and development and general and administrative expense to support such research and development. our net losses may fluctuate significantly from quarter to quarter and year to year. net losses and negative cash flows have had, and will continue to have, an adverse effect on our stockholders' (deficit) equity and working capital. we anticipate that our expenses will increase substantially if and as we: continue to develop and begin clinical trials with respect to sy-1425, including a phase2 clinical trial we expect to initiate in mid-2016; continue to develop sy-1365, including initiating a phase 1/2 clinical trial in the first half of 2017; initiate and continue research, preclinical and clinical development efforts for our preclinical programs; further develop our gene control platform; seek to identify and develop additional product candidates; acquire or in-license other product candidates or technologies; seek regulatory and marketing approvals for our product candidates that successfully complete clinical trials, if any; establish sales, marketing, distribution and other commercial infrastructure in the future to commercialize various products for which we may obtain marketing approval, if any; require the manufacture of larger quantities of product candidates for clinical development and, potentially, commercialization; maintain, expand and protect our intellectual property portfolio; hire and retain additional personnel, such as clinical, quality control and scientific personnel; add operational, financial and management information systems and personnel, including personnel to support our product development and help us comply with our obligations as a public company; and add equipment and physical infrastructure to support our research and development programs. our ability to become and remain profitable depends on our ability to generate revenue. we do not expect to generate significant revenue unless and until we are, or any future collaborator is, able to obtain marketing approval for, and successfully commercialize, one or more of our product candidates. successful commercialization will require achievement of key milestones, including initiating and successfully completing clinical trials of our product candidates, obtaining marketing approval for these product candidates, manufacturing, marketing and selling those products for which we, or any of our future collaborators, may obtain marketing approval, satisfying any post-marketing requirements and obtaining reimbursement for our products from private insurance or government payors. because of the uncertainties and risks associated with these activities, we are unable to accurately predict the timing and amount of revenues, and if or when we might achieve profitability. we and any future collaborators may never succeed in these activities and, even if we do, or any future collaborators do, we may never generate revenues that are large enough for us to achieve profitability. even if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. our failure to become and remain profitable would decrease the value of our company and could impair our ability to raise capital, expand our business, maintain our research and development efforts, diversify our pipeline of product candidates or continue our operations and cause a decline in the value of our common stock.we have a limited operating history, no products approved for sale and no history of commercializing pharmaceutical products, which may make it difficult to evaluate the prospects for our future viability. we commenced operations in 2011. our operations to date have been limited to financing and staffing our company, developing our gene control platform and conducting preclinical research. we have not yet demonstrated an ability to successfully conduct clinical trials, obtain marketing approvals, manufacture a commercial-scale product or arrange for a third party to do so on our behalf, or conduct sales and marketing activities necessary for successful product commercialization. accordingly, you should consider our prospects in light of the costs, uncertainties, delays and difficulties frequently encountered by companies in the early stages of development, especially clinical stage biopharmaceutical companies such as ours. any predictions you make about our future success or viability may not be as accurate as they could be if we had a longer operating history or a history of successfully developing and commercializing pharmaceutical products. we may encounter unforeseen expenses, difficulties, complications, delays and other known or unknown factors in achieving our business objectives. we will eventually need to transition from a company with a development focus to a company capable of supporting commercial activities. we may not be successful in such a transition. we expect our financial condition and operating results to continue to fluctuate significantly from quarter to quarter and year to year due to a variety of factors, many of which are beyond our control. accordingly, you should not rely upon the results of any quarterly or annual periods as indications of future operating performance.we will need substantial additional funding, and if we are unable to raise capital when needed, we could be forced to delay, reduce or eliminate our product development programs or commercialization efforts. developing pharmaceutical products, including conducting preclinical studies and clinical trials, is a very time consuming, expensive and uncertain process that takes years to complete. we expect our expenses to increase in connection with our ongoing activities, particularly as we initiate clinical trials of sy-1425, advance the development of sy-1365, initiate new research and preclinical development efforts and seek marketing approval for any product candidates that we successfully develop. moreover, under license agreements with various licensors, we are obligated to make milestone payments upon the successful completion of specified development and commercialization activities. in addition, if we obtain marketing approval for any product candidate that we may successfully develop, we may incur significant commercialization expenses related to product sales, marketing, manufacturing and distribution to the extent that such sales, marketing, manufacturing and distribution are not the responsibility of a future collaborator. furthermore, following the closing of this offering, we expect to incur significant additional costs associated with operating as a public company. accordingly, we will need to obtain substantial additional funding in connection with our continuing operations. if we are unable to raise capital when needed or on attractive terms, we may be forced to delay, reduce or eliminate our research and development programs or any future commercialization efforts. we plan to use the net proceeds of this offering primarily to fund our ongoing research and development efforts. we will be required to expend significant funds in order to advance the development of sy-1425 and sy-1365, as well as our other preclinical programs. in addition, while we may seek one or more collaborators for future development of our current product candidate or any future product candidates that we may develop for one or more indications, we may not be able to enter into a collaboration for any of our product candidates for such indications on suitable terms, on a timely basis or at all. in any event, the net proceeds of this offering and our existing cash and cash equivalents will not be sufficient to fund all of the efforts that we plan to undertake or to fund the completion of development of our product candidates or our other preclinical programs. accordingly, we will be required to obtain further funding through public or private equity offerings, debt financings, collaborations and licensing arrangements or other sources. we do not have any committed external source of funds. adequate additional financing may not be available to us on acceptable terms, or at all. our failure to raise capital as and when needed would have a negative impact on our financial condition and our ability to pursue our business strategy. we believe that the net proceeds from this offering, together with our existing cash and cash equivalents as of march31, 2016, will enable us to fund our operating expenses and capital expenditure requirements at least through mid-2018. our estimate as to how long we expect the net proceeds from this offering, together with our existing cash and cash equivalents, to be able to continue to fund our operations is based on assumptions that may prove to be wrong, and we could use our available capital resources sooner than we currently expect. further, changing circumstances, some of which may be beyond our control, could cause us to consume capital significantly faster than we currently anticipate, and we may need to seek additional funds sooner than planned. our future funding requirements, both short-term and long-term, will depend on many factors, including: the scope, progress, timing, costs and results of clinical trials of sy-1425 and sy-1365; research and preclinical development efforts for any future product candidates that we may develop; our ability to enter into and the terms and timing of any collaborations, licensing agreements or other arrangements; the number of future product candidates that we pursue and their development requirements; the outcome, timing and costs of seeking regulatory approvals; the costs of commercialization activities for any of our product candidates that receive marketing approval to the extent such costs are not the responsibility of any future collaborators, including the costs and timing of establishing product sales, marketing, distribution and manufacturing capabilities; the costs of acquiring potential new product candidates or technology; the costs of any physician education programs relating to selecting and treating genomically defined patient populations; the timing and amount of milestone and other payments due to licensors for patent and technology rights used in our development platform; revenue received from commercial sales, if any, of our current and future product candidates; our headcount growth and associated costs as we expand our research and development and establish a commercial infrastructure; the costs of preparing, filing and prosecuting patent applications, maintaining and protecting our intellectual property rights and defending against intellectual property related claims; and the costs of operating as a public company.raising additional capital may cause dilution to our stockholders, including purchasers of common stock in this offering, restrict our operations or require us to relinquish rights to our technologies or product candidates. we expect our expenses to increase in connection with our planned operations. to the extent that we raise additional capital through the sale of common stock, convertible securities or other equity securities, your ownership interest may be diluted, and the terms of these securities could include liquidation or other preferences and anti-dilution protections that could adversely affect your rights as a common stockholder. in addition, debt financing, if available, would result in fixed payment obligations and may involve agreements that include restrictive covenants that limit our ability to take specific actions, such as incurring additional debt, making capital expenditures, creating liens, redeeming stock or declaring dividends, that could adversely impact our ability to conduct our business. in addition, securing financing could require a substantial amount of time and attention from our management and may divert a disproportionate amount of their attention away from day-to-day activities, which may adversely affect our management's ability to oversee the development of our product candidates. if we raise additional funds through collaborations or marketing, distribution or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams or product candidates or grant licenses on terms that may not be favorable to us. if we are unable to raise additional funds when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves. risks related to the discovery, development and commercialization of product candidatesour approach to the discovery and development of product candidates based on our gene control platform is novel and unproven, and we do not know whether we will be able to develop any products of commercial value. we are focused on discovering and developing medicines for the treatment of cancer and other diseases based upon our gene control platform. we are leveraging our platform to create a pipeline of gene control drug candidates for genomically defined patients whose diseases have not been adequately addressed to date by other genomics approaches and to design and conduct efficient clinical trials with a higher likelihood of success. while we believe that applying our gene control platform to create medicines for genomically defined patient populations may potentially enable drug research and clinical development that is more efficient than conventional small molecule drug research and development, our approach is both novel and unproven. because our approach is both novel and unproven, the cost and time needed to develop our product candidates is difficult to predict, and our efforts may not result in the discovery and development of commercially viable medicines. we may also be incorrect about the effects of our product candidates on the diseases of genomically defined patient populations, which may limit the utility of our approach or the perception of the utility of our approach. furthermore, our estimates of genomically defined patient populations available for study and treatment may be lower than expected, which could adversely affect our ability to conduct clinical trials and may also adversely affect the size of any market for medicines we may successfully commercialize. we have not yet succeeded and may never succeed in demonstrating efficacy and safety for our current or any future product candidates in clinical trials or in obtaining marketing approval thereafter. for example, although we have discovered and evaluated compounds using our novel gene control platform, we have not yet advanced a compound into any phase of clinical development.our gene control platform may fail to help us discover and develop additional potential product candidates. a significant portion of the research that we are conducting involves identifying novel targets and points of intervention and developing new compounds using our gene control platform. the drug discovery that we are conducting using our gene control platform may not be successful in identifying compounds that have commercial value or therapeutic utility. our gene control platform may initially show promise in identifying potential product candidates, yet fail to yield viable product candidates for clinical development or commercialization for a number of reasons, including: compounds created through our gene control platform may not demonstrate efficacy, safety or tolerability; potential product candidates may, on further study, be shown to have harmful side effects or other characteristics that indicate that they are unlikely to receive marketing approval and achieve market acceptance; competitors may develop alternative therapies that render our potential product candidates non-competitive or less attractive; or a potential product candidate may not be capable of being produced at an acceptable cost. our research programs to identify new product candidates will require substantial technical, financial and human resources, and we may be unsuccessful in our efforts to identify new product candidates. if we are unable to identify suitable additional compounds for preclinical and clinical development, our ability to develop product candidates and obtain product revenues in future periods could be compromised, which could result in significant harm to our financial position and adversely impact our stock price.in the near term, we are dependent on the success of sy-1425 and sy-1365. if we are unable to initiate or complete the clinical development of, obtain marketing approval for or successfully commercialize sy-1425 or sy-1365, either alone or with a collaborator, or if we experience significant delays in doing so, our business could be substantially harmed. we currently have no products approved for sale and are investing a significant portion of our efforts and financial resources in the development of sy-1425 and sy-1365. our prospects are substantially dependent on our ability, or that of any future collaborator, to develop, obtain marketing approval for and successfully commercialize product candidates in one or more disease indications. the success of sy-1425 and sy-1365 will depend on several factors, including the following: initiation and successful enrollment and completion of clinical trials; a safety, tolerability and efficacy profile that is satisfactory to the u.s. food and drug administration, or fda, or any comparable foreign regulatory authority for marketing approval; timely receipt of marketing approvals from applicable regulatory authorities; the performance of our future collaborators, if any; the extent of any required post-marketing approval commitments to applicable regulatory authorities; establishment of supply arrangements with third-party raw materials suppliers and manufacturers including with respect to the supply of active pharmaceutical ingredient for sy-1425; establishment of arrangements with third-party manufacturers to obtain finished drug product that is appropriately packaged for sale; adequate ongoing availability of raw materials and drug product for clinical development and any commercial sales; obtaining and maintaining patent, trade secret protection and regulatory exclusivity, both in the united states and internationally, including our ability to maintain our license agreement with tmrc, which we refer to as the tmrc license agreement; protection of our rights in our intellectual property portfolio; successful launch of commercial sales following any marketing approval; a continued acceptable safety profile following any marketing approval; commercial acceptance by patients, the medical community and third-party payors; successful identification of biomarkers for patient selection; continued availability of appropriate tissue samples to enable the identification of novel targets in genomically defined subsets of patients; and our ability to compete with other therapies. many of these factors are beyond our control, including clinical development, the regulatory submission process, potential threats to our intellectual property rights and the manufacturing, marketing and sales efforts of any future collaborator. if we are unable to develop, receive marketing approval for and successfully commercialize sy-1425 or sy-1365, on our own or with any future collaborator, or experience delays as a result of any of these factors or otherwise, our business could be substantially harmed.if clinical trials of any future product candidates that we, or any future collaborators, may develop fail to satisfactorily demonstrate safety and efficacy to the fda and other regulators, we, or any future collaborators, may incur additional costs or experience delays in completing, or ultimately be unable to complete, the development and commercialization of these product candidates. we, and any future collaborators, are not permitted to commercialize, market, promote or sell any product candidate in the united states without obtaining marketing approval from the fda. foreign regulatory authorities, such as the european medicines agency, or the ema, impose similar requirements. we, and any future collaborators, must complete extensive preclinical development and clinical trials to demonstrate the safety and efficacy of our product candidates in humans before we will be able to obtain these approvals. clinical testing is expensive, is difficult to design and implement, can take many years to complete and is inherently uncertain as to outcome. we cannot guarantee that any clinical trials will be conducted as planned or completed on schedule, if at all. the clinical development of our product candidates is susceptible to the risk of failure inherent at any stage of product development, including failure to demonstrate efficacy in a clinical trial or across a broad population of patients, the occurrence of adverse events that are severe or medically or commercially unacceptable, failure to comply with protocols or applicable regulatory requirements and determination by the fda or any comparable foreign regulatory authority that a product candidate may not continue development or is not approvable. for example, a phase2 clinical trial of tamibarotene (sy-1425) for the treatment of late-stage non-small cell lung cancer, or nsclc, under a previous license between tmrc and a third party was terminated when interim data suggested that the primary endpoint of progression-free survival for 18months after starting therapy would not be reached. interim data also showed that tamibarotene combined with paclitaxel and carboplatin chemotherapy was associated with increased toxicity in this non-selected nsclc patient population. although we have no current plans to conduct studies of sy-1425 in nsclc or combine tamibarotene with paclitaxel and carboplatin in late-stage nsclc patients, we face a similar risk of failure in our planned clinical trials of sy-1425. it is possible that even if one or more of our product candidates has a beneficial effect, that effect will not be detected during clinical evaluation as a result of one or more of a variety of factors, including the size, duration, design, measurements, conduct or analysis of our clinical trials. conversely, as a result of the same factors, our clinical trials may indicate an apparent positive effect of a product candidate that is greater than the actual positive effect, if any. similarly, in our clinical trials we may fail to detect toxicity of or intolerability caused by our product candidates, or mistakenly believe that our product candidates are toxic or not well tolerated when that is not in fact the case. any inability to successfully complete preclinical and clinical development could result in additional costs to us, or any future collaborators, and impair our ability to generate revenues from product sales, regulatory and commercialization milestones and royalties. moreover, if we, or any future collaborators, are required to conduct additional clinical trials or other testing of our product candidates beyond the trials and testing that we or they contemplate, if we, or they, are unable to successfully complete clinical trials of our product candidates or other testing, or the results of these trials or tests are unfavorable, uncertain or are only modestly favorable, or there are unacceptable safety concerns associated with our product candidates, we, or any future collaborators, may: incur additional unplanned costs; be delayed in obtaining marketing approval for our product candidates; not obtain marketing approval at all; obtain approval for indications or patient populations that are not as broad as intended or desired; obtain approval with labeling that includes significant use or distribution restrictions or significant safety warnings, including boxed warnings; be subject to additional post-marketing testing or other requirements; or be required to remove the product from the market after obtaining marketing approval. our failure to successfully initiate and complete clinical trials of our product candidates and to demonstrate the efficacy and safety necessary to obtain regulatory approval to market any of our product candidates would significantly harm our business.adverse events or undesirable side effects caused by, or other unexpected properties of, product candidates that we develop may be identified during development and could delay or prevent their marketing approval or limit their use. adverse events or undesirable side effects caused by, or other unexpected properties of, sy-1425, sy-1365 or any future product candidates that we may develop could cause us, any future collaborators, an institutional review board or regulatory authorities to interrupt, delay or halt clinical trials of one or more of our product candidates and could result in a more restrictive label or the delay or denial of marketing approval by the fda or comparable foreign regulatory authorities. because gene control techniques are relatively new, side effects from gene control approaches may be unpredictable. tamibarotene has been observed to be associated with adverse events, such as mild or moderate dry skin, skin rash, headache and bone pain, as well as retinoic acid syndrome and elevated levels of cholesterol, lipids, liver function enzymes and white blood cells, which were severe in certain cases. furthermore, retinoids such as sy-1425 may cause birth defects and therefore may carry a warning on their label. other examples of retinoids, a class of chemical compounds that are related to vitamin a, include all trans retinoic acid or atra, retin-a, retinol (found in over-the-counter skin creams), isotretinoin and bexarotene. we have not yet tested sy-1365 in humans so the safety profile that sy-1365 will demonstrate in human clinical trials is unknown. if any of our product candidates is associated with adverse events or undesirable side effects or has properties that are unexpected, we, or any future collaborators, may need to abandon development or limit development of that product candidate to certain uses or subpopulations in which the undesirable side effects or other characteristics are less prevalent, less severe or more acceptable from a risk-benefit perspective. many compounds that initially showed promise in clinical or earlier stage testing have later been found to cause undesirable or unexpected side effects that prevented further development of the compound.if we, or any future collaborators, experience any of a number of possible unforeseen events in connection with clinical trials of our current product candidate or any future product candidates that we, or any future collaborators, may develop, potential clinical development, marketing approval or commercialization of our product candidates could be delayed or prevented. we, or any future collaborators, may experience numerous unforeseen events during, or as a result of, clinical trials that could delay or prevent clinical development, marketing approval or commercialization of our current product candidate or any future product candidates that we, or any future collaborators, may develop, including: regulators or institutional review boards may not authorize us, any future collaborators or our or their investigators to commence a clinical trial or conduct a clinical trial at a prospective trial site; we, or any future collaborators, may have delays in reaching or fail to reach agreement on acceptable clinical trial contracts or clinical trial protocols with prospective trial sites; clinical trials of our product candidates may produce unfavorable or inconclusive results; we, or any future collaborators, may decide, or regulators may require us or them, to conduct additional clinical trials or abandon product development programs; the number of patients required for clinical trials of our product candidates may be larger than we, or any future collaborators, anticipate, patient enrollment in these clinical trials may be slower than we, or any future collaborators, anticipate or participants may drop out of these clinical trials at a higher rate than we, or any future collaborators, anticipate; our estimates of the genomically defined patient populations available for study may be higher than actual patient numbers and result in our inability to sufficiently enroll our trials; the cost of planned clinical trials of our product candidates may be greater than we anticipate; our third-party contractors or those of any future collaborators, including those manufacturing our product candidates or components or ingredients thereof or conducting clinical trials on our behalf or on behalf of any future collaborators, may fail to comply with regulatory requirements or meet their contractual obligations to us or any future collaborators in a timely manner or at all; patients that enroll in a clinical trial may misrepresent their eligibility to do so or may otherwise not comply with the clinical trial protocol, resulting in the need to drop the patients from the clinical trial, increase the needed enrollment size for the clinical trial or extend the clinical trial's duration; we, or any future collaborators, may have to delay, suspend or terminate clinical trials of our product candidates for various reasons, including a finding that the participants are being exposed to unacceptable health risks, undesirable side effects or other unexpected characteristics of the product candidate; regulators or institutional review boards may require that we, or any future collaborators, or our or their investigators suspend or terminate clinical research for various reasons, including noncompliance with regulatory requirements or their standards of conduct, a finding that the participants are being exposed to unacceptable health risks, undesirable side effects or other unexpected characteristics of the product candidate or findings of undesirable effects caused by a chemically or mechanistically similar product or product candidate; the fda or comparable foreign regulatory authorities may disagree with our, or any future collaborators', clinical trial designs or our or their interpretation of data from preclinical studies and clinical trials; the fda or comparable foreign regulatory authorities may fail to approve or subsequently find fault with the manufacturing processes or facilities of third-party manufacturers with which we, or any future collaborators, enter into agreements for clinical and commercial supplies; the supply or quality of raw materials or manufactured product candidates or other materials necessary to conduct clinical trials of our product candidates may be insufficient, inadequate or not available at an acceptable cost, or we may experience interruptions in supp | -0.522793 | 17.12 | 2071.50 | 91.323 | 50000000 | 0.317 | True | 2016 |
| 5 | 9.0 | 116.3 | 5000.0 | 91.253925 | SAN JOSE | 14.0000 | 0.708 | 35.05 | 14988.55 | True | NYSE | False | True | Other | Construction | Other | NaN | NaN | UCP Inc | 0.115779 | NaN | Citi\nDeutsche Bank Securities Inc\nZelman Partners LLC | 3443.67 | -1.941 | NaN | 0 | 4 | NaN | 15.0 | NaN | False | NaN | 0 | 2.125250 | 8.5010 | 8.501 | 8.501 | risk factors an investment in our classa common stock involves a high degree of risk and should be considered highly speculative. before making an investment decision, you should carefully consider the following risk factors, which we believe address the material risks concerning our business and an investment in our classa common stock, together with the other information contained in this prospectus. if any of the risks discussed in this prospectus occur, our business, prospects, liquidity, financial condition and results of operations could be materially and adversely affected, in which case the trading price of our classa common stock could decline significantly and you could lose all or a part of your investment. some statements in this prospectus, including statements in the following risk factors, constitute forward-looking statements. please refer to the section entitled cautionary note concerning forward-looking statements. risks related to our business the homebuilding and land development industry in the united states has recently undergone a significant downturn, and the likelihood of a continued recovery is uncertain in the current state of the economy. the homebuilding and land development industry experienced substantial losses in connection with the recent downturn in the u.s.housing market and, in particular, in the northern california housing market. although the housing markets in the u.s. and northern california markets have begun to recover, we cannot predict whether and to what extent this recovery will continue or its timing. while some of the many negative factors that contributed to the housing downturn may have moderated in 2012, several remain, and they could return and/or intensify to inhibit any future improvement in housing market conditions. these negative factors include but are not limited to (a)weak general economic and employment growth that, among other things, restrains consumer incomes, consumer confidence and demand for homes; (b)elevated levels of mortgage loan delinquencies, defaults and foreclosures that could add to a shadow inventory of lender-owned homes that may be sold in competition with new and other resale homes at low distressed prices or that generate short sales activity at such price levels; (c)a significant number of homeowners whose outstanding principal balance on their mortgage loan exceeds the market value of their home, which undermines their ability to purchase another home that they otherwise might desire and be able to afford; (d)volatility and uncertainty in domestic and international financial, credit and consumer lending markets amid slow growth or recessionary conditions in various regions around the world; and (e)tight lending standards and practices for mortgage loans that limit consumers ability to qualify for mortgage financing to purchase a home, including increased minimum credit score requirements, credit risk/mortgage loan insurance premiums and/or other fees and required down payment amounts, more conservative appraisals, higher loan-to-value ratios and extensive buyer income and asset documentation requirements. additional headwinds may come from the efforts and proposals of lawmakers to reduce the debt of the federal government through tax increases and/or spending cuts, and financial markets and businesses reactions to those efforts and proposals, which could impair economic growth. given these factors, there can be no guarantee that we will be successful in implementing our business plan or continue to operate profitably.our long-term growth depends, in part, upon our ability to successfully identify and acquire desirable land parcels for residential buildout, which may become limited due to a variety of factors. our future growth depends, in part, upon our ability to successfully identify and acquire attractive land parcels for development of single-family homes at reasonable prices, either by ourselves, through benchmark communities, or by our third-party homebuilder customers. our ability to acquire land parcels for new single-family homes may be adversely affected by changes in the general availability of land parcels, the willingness of land sellers to sell land parcels at reasonable prices, competition for available land parcels, availability of financing to acquire land parcels, zoning and other market conditions. if the supply of land parcels appropriate for development of single-family homes is limited because of these factors, or for any other reason, our ability to grow could be significantly limited, and our revenue and gross margin could decline. to the extent that we are unable to purchase land parcels or enter into new contracts or options for the purchase of land parcels at reasonable prices, our revenue and results of operations could be negatively impacted. our industry is cyclical and adverse changes in general and local economic conditions could reduce the demand for homes and, as a result, could have a material adverse effect on us. the residential homebuilding industry is cyclical and is highly sensitive to changes in general economic conditions such as levels of employment, consumer confidence and income, availability and cost of financing for acquisitions, construction and mortgages, interest rate levels, inflation and demand for housing. the health of the residential homebuilding industry may also be significantly affected by shadow inventory levels during recessionary and recovery periods. shadow inventory refers to the number of homes with mortgages that are in some form of distress but that have not yet been listed for sale. shadow inventory can occur when lenders put properties that have been foreclosed or forfeited to lenders on the market gradually, rather than all at once, or delay the foreclosure process. a significant shadow inventory in our markets could, were it to be released, adversely impact home and land prices and demand for our homes and land, which would have a material adverse effect on our business, prospects, liquidity, financial condition and results of operations. in addition, an important segment of our end-purchaser and customer base consists of first-time and second-time move-up buyers, who often purchase homes subject to contingencies related to the sale of their existing homes. the difficulties facing these buyers in selling their homes during recessionary periods may adversely affect our sales. moreover, during such periods, we may need to reduce our sales prices and offer greater incentives to buyers to compete for sales that may result in reduced margins.our long-term growth depends, in part, upon our ability to acquire undeveloped land suitable for residential homebuilding at reasonable prices. the availability of partially finished developed lots and undeveloped land for purchase at reasonable prices depends on a number of factors outside our control, including land availability in general, competition with other homebuilders and land buyers, inflation in land prices, zoning, allowable housing density, the ability to obtain building permits and other regulatory requirements. should suitable lots or land become less available, the number of homes we may be able to build and sell could be reduced, and the cost of land could be increased, perhaps substantially, which could adversely impact us. as competition for suitable land increases, the cost of acquiring partially finished developed lots and undeveloped lots and the cost of developing owned land could rise and the availability of suitable land at acceptable prices may decline, which could adversely impact us. the availability of suitable land assets could also affect the success of our land acquisition strategy, which may impact our ability to increase the number of actively selling communities, grow our revenue and margins, and achieve or maintain profitability. additionally, developing undeveloped land is capital intensive and time consuming. it is possible that we may develop land based upon forecasts and assumptions that prove to be inaccurate, resulting in projects that are not economically viable.because of the seasonal nature of our business our quarterly operating results fluctuate. as discussed under managements discussion and analysis of financial condition and results of operationsseasonality, we have experienced seasonal fluctuations in our quarterly operating results and capital requirements that can have a material impact on our results and our consolidated financial statements. we typically experience the highest new home order activity in spring and summer, although this activity is also highly dependent on the number of active selling communities, timing of new community openings and other market factors. since it typically takes four to six months to construct a new home, we deliver more homes in the second half of the year as spring and summer home orders convert to home deliveries. because of this seasonality, home starts, construction costs and related cash outflows have historically been highest in the second and third quarters, and the majority of cash receipts from home deliveries occur during the second half of the year. we expect this seasonal pattern to continue over the long-term, although it may be affected by volatility in the homebuilding industry. we expect the traditional seasonality cycle and its impact on our results to become more prominent if and as the present housing recovery progresses and the homebuilding industry returns to a more normal operating environment, but we can make no assurances as to the degree to which our historical 24 seasonal patterns will occur in 2013 and beyond, if at all. this seasonality requires us to finance our construction activities significantly in advance of the receipt of sales proceeds. accordingly, there is a risk that we will invest significant amounts of capital in the acquisition and development of land and construction of homes that we do not sell at anticipated pricing levels or within anticipated time frames. if, due to market conditions, construction delays or other causes, we do not complete home sales at anticipated pricing levels or within anticipated time frames, our liquidity, financial condition and results of operations would be adversely affected.if the market value of our land inventory decreases, our results of operations could be adversely affected by impairments and write-downs. the market value of our land and housing inventories depends on market conditions. we acquire land for expansion into new markets and for replacement of land inventory and expansion within our current markets. there is an inherent risk that the value of the land owned by us may decline after purchase. the valuation of property is inherently subjective and based on the individual characteristics of each property. we may have acquired options on or bought and developed land at a cost we will not be able to recover fully or on which we cannot build and sell homes profitably. in addition, our deposits for lots controlled under purchase, option or similar contracts may be put at risk. factors such as changes in regulatory requirements and applicable laws (including in relation to building regulations, taxation and planning), political conditions, the condition of financial markets, both local and national economic conditions, the financial condition of customers, potentially adverse tax consequences, and interest and inflation rate fluctuations subject valuations to uncertainty. moreover, our valuations are made on the basis of assumptions that may not prove to reflect economic or demographic reality. if housing demand fails to meet our expectations when we acquired our inventory, our profitability may be adversely affected and we may not be able to recover our costs when we sell and build houses. in 2011, housing market conditions adversely impacted the anticipated timing and amount of sales at certain of our projects. we revised our expectations for the cash flows from these projects and evaluated whether each projects expected cash flows exceeded its carrying value. as of december31, 2011, after examining market data relating to two of our projects located in outlying areas of fresno, california, we concluded that our expected future cash flows from these projects (which can be very difficult to project, particularly estimated land development and off-site infrastructure costs in the absence of approved entitlements) would not exceed their carrying values. accordingly, we measured the fair values of these projects using discounted cash flow models and recorded a non-cash impairment charge of $5.2 million in cost of sales-land development for the year ended december31, 2011. we regularly review the value of our land holdings and continue to review our holdings on a periodic basis. further material write-downs and impairments in the value of our inventory may be required, and we may in the future sell land or homes at a loss, which could adversely affect our results of operations and financial condition.the estimates, forecasts and projections relating to our markets prepared by jbrec are based upon numerous assumptions and may not prove to be accurate. this prospectus contains estimates, forecasts and projections relating to our markets that were prepared for us for use in connection with this offering by jbrec, an independent research provider and consulting firm focused on the housing industry. see market opportunity. the estimates, forecasts and projections relate to, among other things, employment, demographics, household income, home sales prices and affordability. no assurance can be given that these estimates are, or that the forecasts and projections will prove to be, accurate. these estimates, forecasts and projections are based on data (including third-party data), significant assumptions, proprietary methodologies and the experience and judgment of jbrec. no assurance can be given regarding the accuracy or appropriateness of the assumptions and judgments made, or the methodologies used, by jbrec. the application of alternative assumptions, judgments or methodologies could result in materially less favorable 25 estimates, forecasts and projections than those contained in this prospectus. other real estate experts have different views regarding these forecasts and projections that may be more positive or negative, including in terms of the timing, magnitude and direction of future changes. the forecasts and projections are forward-looking statements and involve risks and uncertainties that may cause actual results to be materially different from the projections. jbrec has made these forecasts and projections based on studying the historical and current performance of the residential housing market and applying jbrecs qualitative knowledge about the residential housing market. the future is difficult to predict, particularly given that the economy and housing markets can be cyclical, subject to changing consumer and market psychology, and governmental policies related to mortgage regulations and interest rates. there will usually be differences between projected and actual outcomes, because events and circumstances frequently do not occur as expected, and the differences may be material. accordingly, the forecasts and projections included in this prospectus might not occur or might occur to a different extent or at a different time. for the foregoing reasons, neither we nor jbrec can provide any assurance that the estimates, forecasts and projections contained in this prospectus are accurate, actual outcomes may vary significantly from those contained or implied by the forecasts and projections, and you should not place undue reliance on these estimates, forecasts and projections. except as required by law, we are not obligated to, and do not intend to, update the statements in this prospectus to conform to actual outcomes or changes in our or jbrecs expectations.the homebuilding industry is highly competitive and if our competitors are more successful or offer better value to our customers our business could decline. we operate in a very competitive environment which is characterized by competition from a number of other homebuilders and land developers in each market in which we operate. additionally, there are relatively low barriers to entry into our business. we compete with numerous large national and regional homebuilding companies and with smaller local homebuilders and land developers for, among other things, home buyers, desirable land parcels, financing, raw materials and skilled management and labor resources. our competitors may independently develop land and construct housing units that are superior or substantially similar to our products. increased competition could hurt our business, as it could prevent us from acquiring attractive land parcels on which to build homes or make such acquisitions more expensive, hinder our market share expansion and cause us to increase our selling incentives and reduce our prices. an oversupply of homes available for sale or discounting of home prices could adversely affect pricing for homes in the markets in which we operate. oversupply and price discounting have periodically adversely affected certain markets, and it is possible that our markets will be adversely affected by these factors in the future. we also compete with the resale, or previously owned, home market which has increased significantly due to the large number of homes that have been foreclosed on or could be foreclosed on due to the recent economic downturn. if we are unable to compete effectively in our markets, our business could decline disproportionately to our competitors, and our results of operations and financial condition could be adversely affected. we may be at a competitive disadvantage with regard to certain of our large national and regional homebuilding competitors whose operations are more geographically diversified than ours, as these competitors may be better able to withstand any future regional downturn in the housing market. we compete directly with a number of large national and regional homebuilders, many of which have longer operating histories and greater financial and operational resources than we do. many of these competitors also have longstanding relationships with subcontractors and suppliers in the markets in which we operate. this may give our competitors an advantage in marketing their products, securing materials and labor at lower prices and allowing their homes to be delivered to customers more quickly and at more favorable prices. this competition could reduce our market share and limit our ability to expand our business as we have planned. if home buyers are not able to obtain suitable mortgage financing, due to more stringent lending standards, rising interest rates, changes in regulation, reduced investor demand for mortgage loans and mortgage backed securities, changes in the relationship between fannie mae and freddie mac and the federal government or other reasons, our results of operations may decline. a substantial majority of home buyers finance their home purchases through lenders that provide mortgage financing. the availability of mortgage financing remains constrained, due in part to lower mortgage valuations on properties, various regulatory changes and lower risk appetite by lenders, with many lenders requiring increased levels of financial qualification, lending at lower multiples of income and requiring larger down payments. first-time home buyers are generally more affected by the availability of mortgage financing than other potential home buyers. these buyers are a key source of demand for new homes. a limited availability of home mortgage financing may adversely affect the volume of our home and land sales and the sales prices we achieve. additionally, housing demand is adversely affected by reduced availability of mortgage financing and factors that increase the upfront or monthly cost of financing a home, such as increases in interest rates, insurance premiums or limitations on mortgage interest deductibility. the recent decrease in the willingness and ability of lenders to make home mortgage loans, the tightening of lending standards and the reduction in the types of financing products available, have made it more difficult for home buyers to obtain acceptable financing. any substantial increase in mortgage interest rates or unavailability of mortgage financing may adversely affect the ability of prospective first-time and move-up home buyers to obtain financing for our homes, as well as adversely affect the ability of prospective move-up home buyers to sell their current homes. the housing industry is benefiting from the current low interest rate environment, which has allowed many home buyers to obtain mortgage financing with relatively low interest rates as compared to long-term historical averages. while the timing of any increase in interest rates is uncertain, it is widely expected that interest rates will increase, and any such increase will make mortgage financing more expensive and adversely affect the ability of home buyers to purchase our homes. the recent disruptions in the credit markets and the curtailed availability of mortgage financing has adversely affected, and is expected to continue to adversely affect, our business, prospects, liquidity, financial condition, results of operations and cash flows as compared to prior periods. beginning in 2008, the mortgage lending industry has experienced significant instability, beginning with increased defaults on sub-prime loans and other nonconforming loans and compounded by expectations of increasing interest payment requirements and further defaults. this in turn resulted in a decline in the market value of many mortgage loans and related securities. lenders, regulators and others questioned the adequacy of lending standards and other credit requirements for several loan products and programs offered in recent years. credit requirements have tightened, and investor demand for mortgage loans and mortgage-backed securities has declined. the deterioration in credit quality during the recent economic downturn caused almost all lenders to stop offering sub-prime mortgages and most other loan products that were not eligible for sale to fannie mae or freddie mac or loans that did not meet fha and veterans administration requirements. fewer loan products, tighter loan qualifications and a reduced willingness of lenders to make loans may continue to make it more difficult for certain buyers to finance the purchase of our homes. these factors may reduce the pool of qualified home buyers and make it more difficult to sell to first-time and move-up buyers who have historically made up a substantial part of our homebuilding customers. reductions in demand adversely affected our business and financial results during the downturn, and the duration and severity of some of their effects remain uncertain. the liquidity provided by fannie mae and freddie mac to the mortgage industry has been very important to the housing market. these entities have required substantial injections of capital from the federal government and may require additional government support in the future. several federal government officials have proposed changing the nature of the relationship between fannie mae and freddie mac and the federal government and even nationalizing or eliminating these entities entirely. if fannie mae and freddie mac were dissolved or if the federal government determined to stop providing liquidity support to the mortgage market, there would be a reduction in the availability of the financing provided by these institutions. any such reduction would likely have an adverse effect on interest rates, mortgage availability and our sales of new homes. if home buyers are not able to obtain fha financing due to further tightening of borrower eligibility and future restrictions imposed by lenders on fha financing, our results of operations may decline. the fha insures mortgage loans that generally have lower down payment requirements and qualification standards compared to conventional guidelines, and as a result, continue to be a particularly important source for financing the sale of our homes. in recent years, lenders have taken a more conservative view of fha guidelines causing significant tightening of borrower eligibility for approval. in the near future, further restrictions are expected on fha-insured loans, including limitations on seller-paid closing costs and concessions. this or any other restriction may negatively affect the availability or affordability of fha financing, which could adversely affect our ability to sell homes. in addition, changes in federal regulatory and fiscal policies aimed at aiding the home buying market (including a repeal of the home mortgage interest tax deduction) may also negatively affect potential home buyers ability to purchase homes.if suitable mortgage financing is not available to home buyers generally, our home buyers may not be able to sell their existing homes in order to buy a new home from us, which would adversely affect our results of operations. in each of our markets, decreases in the availability of credit and increases in the cost of credit adversely affect the ability of home buyers to obtain or service mortgage debt. even if potential home buyers do not themselves need mortgage financing, where potential home buyers must sell their existing homes in order to buy a new home, increases in mortgage costs, lack of availability of mortgages and/or regulatory changes could prevent the buyers of potential home buyers existing homes from obtaining a mortgage, which would result in our potential customers inability to buy a new home from us. similar risks apply to those buyers who are awaiting delivery of their homes and are currently in backlog. our success depends, in part, on the ability of potential home buyers to obtain mortgages for the purchase of homes. if our customers (or potential buyers of our customers existing homes) cannot obtain suitable financing, our sales and results of operations could be adversely affected.new lending requirements pursuant to the dodd-frank wall street reform and consumer protection act could reduce the availability and increase the cost of mortgage financing, which could adversely affect out results of operations. in july 2010, the dodd-frank wall street reform and consumer protection act was signed into law. this legislation provides for a number of new requirements relating to residential mortgages and mortgage lending practices, many of which are to be developed further by implementing rules. these include, among others, minimum standards for mortgages and lender practices in making mortgages, limitations on certain fees and incentive arrangements, retention of credit risk and remedies for borrowers in foreclosure proceedings. the effect of such provisions on lending institutions will depend on the rules that are ultimately enacted. however, these requirements, as and when implemented, are expected to reduce the availability of loans to borrowers and/or increase the costs to borrowers to obtain such loans. any such reduction could result in a decline of our home and land sales, which could materially and adversely affect us.our geographic concentration could materially and adversely affect us if the homebuilding industry in our current markets should experience a decline. our business strategy is focused on the acquisition of suitable land and the design, construction and sale of single-family homes in residential subdivisions, including planned communities, in northern california and washington state. in california, we principally operate in the central valley area, the monterey bay area and the south san francisco bay area; in washington state, we operate in the puget sound area. because our operations are concentrated in these areas, a prolonged economic downturn in one or more of these areas, particularly within california, could have a material adverse effect on our business, prospects, liquidity, financial condition and results of operations, and a disproportionately greater impact on us than other homebuilders with more diversified operations. from 2007 to 2009, land values, the demand for new homes and home prices declined 28 substantially in california. in addition, the state of california has experienced severe budget shortfalls in recent years and has raised taxes and certain fees to offset the deficit. if these conditions in california persist or worsen, it would have a material adverse effect on our business, prospects, liquidity, financial condition and results of operations. if buyer demand for new homes in california or washington state decreases, home prices could stagnate or decline, which would have a material adverse effect on us.any limitation on, or reduction or elimination of, tax benefits associated with owning a home would have an adverse effect upon the demand for land and homes for residential development, which could be material to our business. changes in federal income tax laws may affect demand for new homes and land suitable for residential development. current tax laws generally permit significant expenses associated with owning a home, primarily mortgage interest expense and real estate taxes, to be deducted for the purpose of calculating an individuals federal, and in many cases, state, taxable income. various proposals have been publicly discussed to limit mortgage interest deductions and to limit the exclusion of gain from the sale of a principal residence. for instance, under the american taxpayer relief act of 2012, which was signed into law in january 2013, the federal government enacted higher income tax rates and limits on the value of tax deductions for certain high-income individuals and households. if the federal government or a state government changes or further changes its income tax laws, as some lawmakers have proposed, by eliminating, limiting or substantially reducing these income tax benefits, without offsetting provisions, the after-tax cost of owning a new home would increase for many of our potential customers. enactment of any such proposal may have an adverse effect on the homebuilding industry in general, as the loss or reduction of homeowner tax deductions could decrease the demand for new homes and land suitable for residential development.difficulty in obtaining sufficient capital could result in an inability to acquire land for our developments or increased costs and delays in the completion of development projects. the homebuilding and land development industry is capital-intensive and requires significant up front expenditures to acquire land parcels and begin development. in addition, if housing markets are not favorable or permitting or development takes longer than anticipated, we may be required to hold our investments in land for extended periods of time. if internally generated funds are not sufficient, we may seek additional capital in the form of equity or debt financing from a variety of potential sources, including additional bank financings and/or securities offerings. the availability of borrowed funds, especially for land acquisition and construction financing, may be greatly reduced nationally, and the lending community may require increased amounts of equity to be invested in a project by borrowers in connection with both new loans and the extension of existing loans. the credit and capital markets have recently experienced significant volatility. if we are required to seek additional financing to fund our operations, continued volatility in these markets may restrict our flexibility to access such financing. if we are not successful in obtaining sufficient capital to fund our planned capital and other expenditures, we may be unable to acquire land for development or to develop housing. additionally, if we cannot obtain additional financing to fund the purchase of land under our purchase or option contracts, we may incur contractual penalties and fees. any difficulty in obtaining sufficient capital for planned development expenditures could also cause project delays and any such delay could result in cost increases. any one or more of the foregoing events could have a material adverse effect on our business, prospects, liquidity, financial condition and results of operations.we face potentially substantial risk with respect to our land and lot inventory. we intend to acquire land parcels for re | -0.007261 | 100.00 | 1615.41 | 267.320 | 116250000 | 92.726 | False | 2013 |
| 6 | 41.0 | 150.0 | NaN | 161.103523 | FAIRPORT | 12.0000 | NaN | 175.49 | 12044.47 | False | NYSE | False | True | Finance | Trading | Other | NaN | NaN | Manning & Napier Inc | NaN | 1625000.0 | Bank of America Merrill Lynch | 2697.97 | -27.167 | NaN | 0 | 7 | NaN | 12.0 | NaN | False | NaN | 0 | 2.714714 | 0.0000 | 0.000 | 19.003 | risk factors investing in our classa common stock involves a high degree of risk. you should carefully consider the risks described below, together with the other information contained in this prospectus, before making your decision to invest in shares of our classa common stock. we cannot assure you that any of the events discussed in the risk factors below will not occur. these risks could have an adverse impact on our business, results of operations, financial condition and cash flows. if any of the following risks develops into an actual event, the trading price of our classa common stock could decline, and you could lose all or part of your investment. risks related to our business our revenues are dependent on the market value and composition of our aum, all of which are subject to fluctuation due to factors outside of our control. we derive the majority of our revenue from investment management fees, typically calculated as a percentage of the market value of our aum. as a result, our revenues are dependent on the value and composition of our aum, all of which are subject to fluctuation due to many factors, including: declines in prices of securities in our portfolios. the prices of the securities held in the portfolios we manage may decline due to any number of factors beyond our control, including, among others, declining stock or commodities markets, a general economic downturn, political uncertainty or acts of terrorism. the u.s. and global financial markets experienced extreme disruption in 2008 and the first quarter of 2009 and continue to be subject to an unusual amount of uncertainty and instability. current conditions affecting the global financial markets include persistently high unemployment rates in the united states, continued weakness in many real estate markets, increased austerity measures by several european governments, regional turmoil in the middle east, growing debt loads for many national and other governments and uncertainty about the consequences of governments discontinuing fiscal stimulus measures. such factors could cause an unusual degree of volatility and price declines for securities in the portfolios we manage. redemptions and other withdrawals. our investors generally may withdraw their funds at any time, on very short notice and without any significant penalty. a substantial portion of our revenue is derived from investment advisory agreements that are terminable by clients upon short notice or no notice and investors in the mutual funds we advise can redeem their investments in those funds at any time without prior notice. our growth in aum in recent years has included new clients and portfolios that may not have the same client retention characteristics as we have experienced in the past. in addition, in a declining stock market, the pace of redemptions could accelerate. investment performance. if our portfolios perform poorly, even over the short-term, as compared with our competitors or applicable third-party benchmarks, or the rankings of mutual funds we manage decline, we may lose existing aum and have difficulty attracting new assets. declines in fixed income markets. for fixed income investments, the value of our aum may decline as a result of changes in interest rates, available liquidity in the markets in which a security trades, an issuers actual or perceived creditworthiness, or an issuers ability to meet its obligations. if any of these factors cause a decline in our aum, it would result in lower investment management fees. if our revenues decline without a commensurate reduction in our expenses, our net income will be reduced and our business will be adversely affected. the loss of key investment professionals or members of our senior management team could have an adverse effect on our business. we depend on the skills and expertise of qualified investment professionals and our success depends on our ability to retain key employees, including members of our senior management team. our investment professionals possess substantial experience in investing and have been primarily responsible for the historically strong investment performance we have achieved. we particularly depend on our senior research group, which is a team of ten senior analysts who manage our portfolios, and our executive management team, which is a group of five individuals led by patrick cunningham, our chief executive officer. the loss of any of these key individuals could limit our ability to successfully execute our business strategy and could have an adverse effect on our business. any of our investment or management professionals may resign at any time, subject to various covenants not to compete with us. in addition, employee-owners are subject to additional covenants not to compete. we do not carry any key man insurance on any employees at this time. competition for qualified investment, management, marketing and client service professionals is intense and we may fail to successfully attract and retain qualified personnel in the future. our ability to attract and retain these personnel will depend heavily on the amount and structure of compensation and opportunities for equity ownership we offer. in connection with our transition to a public company, we intend to implement a compensation structure that uses a combination of cash and equity-based incentives as appropriate. we intend for overall compensation levels to remain commensurate with amounts paid to our named executive officers and other key employees in the past. however, our compensation may not be effective to recruit and retain the personnel we need, especially if our equity-based compensation does not return significant value to employees. any cost-reduction initiative or adjustments or reductions to compensation could negatively impact our ability to retain key personnel. in addition, changes to our management structure, corporate culture and corporate governance arrangements, including the changes associated with, and resulting from, our reorganization and this offering, could negatively impact our ability to retain key personnel.we derive substantially all of our revenues from contracts and relationships that may be terminated upon short or no notice. we derive substantially all of our revenues from investment advisory and sub-advisor agreements, all of which are terminable by clients upon short notice or no notice and without any significant penalty. our investment management agreements with mutual funds, as required by law, are generally terminable by the funds board of directors or a vote of the majority of the funds outstanding voting securities on not more than 60 days written notice. after an initial term, each funds investment management agreement must be approved and renewed annually by such funds board, including by its independent members. in addition, all of our separate account clients and some of the pooled investment vehicles, including mutual funds, that we sub-advise have the ability to re-allocate all or any portion of the assets that we manage away from us at any time with little or no notice. these investment management agreements and mutual fund and collective investment trust client relationships may be terminated or not renewed for any number of reasons. the decrease in revenues that could result from the termination of a material client relationship or group of client relationships could have an adverse effect on our business.we may be required to reduce the fees we charge, or our fees may decline due to changes in our aum composition, which could have an adverse effect on our profit margins and results of operations. our current fee structure may be subject to downward pressure due to a variety of factors, including a trend in recent years toward lower fees in the investment management industry. we may be required to reduce fees with respect to both the separate accounts we manage and the mutual funds we advise. in addition, we may charge lower fees to attract future new business as compared to our existing business, which may result in us having to reduce our fees with respect to our existing business accordingly. the investment management 20 agreements pursuant to which we advise mutual funds are terminable on short notice and, after an initial term, are subject to an annual process of review and renewal by the funds boards. as part of that annual review process, the fund board considers, among other things, the level of compensation that the fund has been paying us for our services, and that process may result in the renegotiation of our fee structure or increase our obligations, thus increasing the cost of our performance. further, in recent periods our average fee rate has been declining due to higher average separately managed account sizes triggered by market appreciation and new separately managed account clients. any fee reductions on existing or future new business could have an adverse effect on our profit margins and results of operations.several of our portfolios involve investing principally in the securities of non-u.s. companies, which involve foreign currency exchange risk, and tax, political, social and economic uncertainties and risks. as of september30, 2011, approximately 37% of our aum across all of our portfolios was invested in securities of non-u.s. companies. fluctuations in foreign currency exchange rates could negatively affect the returns of our clients who are invested in these strategies. in addition, an increase in the value of the u.s. dollar relative to non-u.s. currencies is likely to result in a decrease in the u.s. dollar value of our aum, which, in turn, could result in lower revenue since we report our financial results in u.s. dollars. investments in non-u.s. issuers may also be affected by tax positions taken in countries or regions in which we are invested as well as political, social and economic uncertainty, particularly as a result of the recent decline in global economic conditions. declining tax revenues may cause governments to assert their ability to tax the local gains and/or income of foreign investors (including our clients), which could adversely affect clients interests in investing outside their home markets. many financial markets are not as developed, or as efficient, as the u.s. financial markets and, as a result, those markets may have limited liquidity and higher price volatility and lack established regulations. liquidity may also be adversely affected by political or economic events, government policies, social or civil unrest within a particular country, and our ability to dispose of an investment may also be adversely affected if we increase the size of our investments in smaller non-u.s. issuers. non-u.s. legal and regulatory environments, including financial accounting standards and practices, may also be different, and there may be less publicly available information about such companies. these risks could adversely affect the performance of our strategies that are invested in securities of non-u.s. issuers and may be particularly acute in the emerging or less developed markets in which we invest.we derive a substantial portion of our revenues from our core non-u.s. equity portfolios. as of september30, 2011, approximately 32% of our aum were invested in our core non-u.s. equity portfolios. as a result, a substantial portion of our operating results depends upon the performance of our core non-u.s. equity portfolios, and our ability to retain client assets in such portfolios. if a significant portion of the investors in our core non-u.s. equity portfolios decide to withdraw their investments or terminate their investment management agreements for any reason, including poor investment performance or adverse market conditions, our revenues from these portfolios would decline, which could have an adverse effect on our earnings and financial condition.the investment performance and/or the growth of our aum may be constrained if appropriate investment opportunities are not available or if we close certain of our portfolios. our ability to deliver strong investment performance depends in large part on our ability to identify appropriate investment opportunities in which to invest client assets. if we are unable to identify sufficient appropriate investment opportunities for existing and new client assets on a timely basis, our investment performance could be adversely affected. the risk that sufficient appropriate investment opportunities may be unavailable is influenced by a number of factors, including general market conditions, and is likely to increase as and if our aum increases, particularly if these increases occur very rapidly. if we determine that sufficient investment opportunities are not available for some or all of our portfolios, or we believe that in order to remain competitive or continue to produce attractive returns from some 21 or all of our portfolios we should limit the growth of those strategies, as we have done in the past, we may choose to limit the growth of the portfolio by limiting the rate at which we accept additional client assets for management under the portfolio, closing the portfolio to all or substantially all new investors or otherwise taking action to limit the flow of assets into the portfolio. if we misjudge the point at which it would be optimal to limit access to or close a portfolio, the investment performance of the portfolio could be negatively impacted. in addition, if we close access to a portfolio, we may offer a new portfolio to our clients, but we cannot guarantee that such new portfolio will attract clients or perform in a manner consistent with the closed portfolio. limiting access to or closing a portfolio, while designed to enable us to remain competitive or continue to produce attractive returns, may be seen by some investors in our class a common stock solely as a loss of revenue growth opportunities in the short-term, which could lead to a decrease in the value of our class a common stock and a loss on your investment.the significant growth we have experienced over the past nine years has been and may continue to be difficult to sustain, and we may have difficulty managing our growth effectively. our aum have increased from $6.4 billion as of december31, 2002 to $38.8 billion as of september30, 2011. the rapid growth in our aum represents a significant rate of growth that has been and may continue to be difficult to sustain. in particular, as the absolute amount of our aum increases, it will be more difficult to maintain levels of growth similar to those we have experienced in the past. the future growth of our business will depend on, among other things: our ability to retain key investment professionals; our ability to attract investment professionals as necessary; our ability to devote sufficient resources to maintaining existing portfolios and to selectively develop new portfolios; our success in achieving superior investment performance from our portfolios; our ability to maintain and extend our distribution capabilities; our ability to deal with changing market conditions; our ability to maintain adequate financial and business controls; and our ability to comply with new legal and regulatory requirements arising in response to both the increased sophistication of the investment management industry and the significant market and economic events of the last few years. unless our growth results in an increase in our revenues that is proportionate to the increase in our costs associated with this growth, our future profitability will be adversely affected. in addition, failure to successfully diversify into new asset classes may adversely affect our growth strategy and our future profitability.our portfolios may not obtain attractive returns under certain market conditions or at all. the goal of our investment process is to provide competitive absolute returns over full market cycles. accordingly, our portfolios may not perform well as compared to benchmarks or other investment managers strategies during certain periods of time or under certain market conditions, including periods of market uncertainty and volatility similar to what we have experienced in recent months. short-term underperformance may negatively affect our ability to retain clients and attract new clients. we are likely to be most out of favor when the markets are running on positive or negative price momentum and market prices become disconnected from underlying investment fundamentals, as was the case during the late 1990s as the technology market and mega cap stocks fueled the broad market upward. during and shortly 22 following such periods of relative under performance, we are likely to see our highest levels of client turnover, even if our absolute returns are positive. loss of client assets and the failure to attract new clients could adversely affect our revenues and growth.the historical returns of our existing portfolios may not be indicative of their future results or of the portfolios we may develop in the future. we have presented the historical returns of our existing portfolios under businessour competitive strengthstrack record of consistent investment excellence through multiple market cycles. the historical returns of our portfolios and the ratings and rankings we or the mutual funds that we advise have received in the past should not be considered indicative of the future results of these portfolios or of any other portfolios that we may develop in the future. the investment performance we achieve for our clients varies over time and the variance can be wide. the ratings and rankings we or the mutual funds we advise have received are typically revised monthly. the historical performance and ratings and rankings included in this prospectus are as of september30, 2011 and for periods then ended except where otherwise stated. the performance we have achieved and the ratings and rankings received at subsequent dates and for subsequent periods may be higher or lower and the difference could be material. our portfolios returns have benefited during some periods from investment opportunities and positive economic and market conditions. in other periods, such as in 2008 and the first quarter of 2009, general economic and market conditions have negatively affected our portfolios returns. these negative conditions may occur again, and in the future we may not be able to identify and invest in profitable investment opportunities within our current or future portfolios.we depend on third-party distribution sources to market our portfolios and access our client base. our ability to attract additional assets to manage is dependent on our access to third-party intermediaries.we gain access to mutual fund investors and some retail and institutional clients through third parties, including mutual fund platforms and financial intermediaries. as of september30, 2011, the largest relationship we have with a third party represents 5.3% of our total aum and the mutual fund platform representing the largest portion of our fund assets represents an additional 5.7% of our total aum. we compensate most of the intermediaries through which we gain access to investors in our mutual funds by paying fees, most of which are based on a percentage of assets invested in our mutual funds through that intermediary and with respect to which that intermediary provides services. these distribution sources and client bases may not continue to be accessible to us on terms we consider commercially reasonable, or at all. limiting or the total absence of such access could have an adverse effect on our results of operations. many of these consultants review and evaluate our products and our firm from time to time. poor reviews or evaluations of a particular product, portfolio or us as an investment management firm may result in client withdrawals or may impair our ability to attract new assets through these intermediaries. in addition, the recent economic downturn and consolidation in the broker-dealer industry may lead to reduced distribution access and increases in fees we are required to pay to intermediaries. if such increased fees should be required, refusal to pay them could restrict our access to those client bases while paying them could adversely affect our profitability.our efforts to establish new portfolios or new products or services may be unsuccessful and could negatively impact our results of operations and our reputation. as part of our growth strategy, we may seek to take advantage of opportunities to develop new portfolios consistent with our philosophy of managing portfolios to meet our clients objectives and using a team investment approach. the costs associated with establishing a new portfolio initially likely will exceed the revenues that the portfolio generates. if any such new portfolio performs poorly or fails to attract sufficient assets to manage, our results of operations could be negatively impacted. further, a new portfolios poor performance may negatively impact our reputation and the reputation of our other portfolios within the investment community. in addition, we have developed and may seek from time to time to develop new products and services to take advantage of opportunities involving technology, insurance, participant and plan sponsor 23 education and other products beyond investment management. the development of these products and services could involve investment of financial and management resources and may not be successful in developing client relationships, which could have an adverse effect on our business. the cost to develop these products initially will likely exceed the revenue they generate. if establishing new portfolios or offering new products or services requires hiring new personnel, to the extent we are unable to recruit and retain sufficient personnel, we may not be successful in further diversifying our portfolios, client assets and business, which could have an adverse effect on our business and future prospects.our failure to comply with investment guidelines set by our clients, including the boards of mutual funds, and limitations imposed by applicable law, could result in damage awards against us and a loss of our aum, either of which could adversely affect our reputation, results of operations or financial condition. when clients retain us to manage assets on their behalf, they generally specify certain guidelines regarding investment allocation that we are required to follow in managing their portfolios. in addition, the boards of mutual funds we manage generally establish similar guidelines regarding the investment of assets in those funds. we are also required to invest the mutual funds assets in accordance with limitations under the u.s. investment company act of 1940, as amended, or the 1940 act, and applicable provisions of the internal revenue code of 1986, as amended, or the code. other clients, such as plans subject to the employee retirement income security act of 1974, as amended, or erisa, or non-u.s. funds, require us to invest their assets in accordance with applicable law. our failure to comply with any of these guidelines and other limitations could result in losses to clients or investors in our products which, depending on the circumstances, could result in our obligation to make clients whole for such losses. if we believed that the circumstances did not justify a reimbursement, or clients believed the reimbursement we offered was insufficient, clients could seek to recover damages from us, withdraw assets from our products or terminate their investment management agreement with us. any of these events could harm our reputation and adversely affect our business.a change of control of our company could result in termination of our investment advisory agreements. under the 1940 act, each of the investment advisory agreements for securities and exchange commission, or sec, registered mutual funds that our affiliate, mna, advises automatically terminates in the event of its assignment, as defined under the 1940 act. if such an assignment were to occur, mna could continue to act as adviser to any such fund only if that funds board of directors and stockholders approved a new investment advisory agreement, except in the case of certain of the funds that we sub-advise for which only board approval would be necessary. in addition, under the u.s. investment advisers act of 1940, as amended, or the advisors act, each of the investment advisory agreements for the separate accounts we manage may not be assigned without the consent of the client. an assignment may occur under the 1940 act and the advisers act if, among other things, mna undergoes a change of control. in certain other cases, the investment advisory agreements for the separate accounts we manage require the consent of the client for any assignment. if such an assignment occurs, we cannot be certain that mna will be able to obtain the necessary approvals from the boards and stockholders of the mutual funds that it advises or the necessary consents from separate account clients.operational risks may disrupt our business, result in losses or limit our growth. we are heavily dependent on the capacity and reliability of the communications, information and technology systems supporting our operations, whether developed, owned and operated by us or by third parties. operational risks such as trading or operational errors or interruption of our financial, accounting, trading, compliance and other data processing systems, whether caused by fire, natural disaster or pandemic, power or telecommunications failure, act of terrorism or war or otherwise, could result in a disruption of our business, liability to clients, regulatory intervention or reputational damage, and thus adversely affect our business. some types of operational risks, including, for example, trading errors, may be increased in periods of increased volatility, which can magnify the cost of an error. although we have back-up systems in place, our back-up procedures and capabilities in the event of a failure or interruption may not be adequate, and the fact that we operate our business out of multiple physical locations may make such failures and interruptions difficult to 24 address on a timely and adequate basis. as and if our client base, number of portfolios and/or physical locations increase, developing and maintaining our operational systems and infrastructure may become increasingly challenging, which could constrain our ability to expand our business. any upgrades or expansions to our operations or technology to accommodate increased volumes of transactions or otherwise may require significant expenditures and may increase the probability that we will suffer system degradations and failures. in addition, if we are unsuccessful in executing any such upgrades or expansions, we may instead have to hire additional employees, which could increase operational risk due to human error. we also depend on our headquarters in fairport, new york, where a majority of our employees, administration and technology resources are located, for the continued operation of our business. any significant disruption to our headquarters could have an adverse effect on our business.we depend on third-party service providers for services that are important to our business, and an interruption or cessation of such services by any such service providers could have an adverse effect on our business. we depend on a number of service providers, including custodial and clearing firms, and vendors of communications and networking products and services. we cannot assure you that any of these providers will be able to continue to provide these services in an efficient manner or that they will be able to adequately expand their services to meet our needs. an interruption or malfunction in or the cessation of an important service by any third-party and our inability to make alternative arrangements in a timely manner, or at all, could have an adverse impact on our business, financial condition and operating results.employee misconduct could expose us to significant legal liability and reputational harm. we operate in an industry in which integrity and the confidence of our clients are of critical importance. accordingly, if any of our employees engage in illegal or suspicious activities or other misconduct, we could be subject to regulatory sanctions and suffer serious harm to our reputation, financial condition, client relationships and ability to attract new clients. for example, our business often requires that we deal with confidential information. if our employees were to improperly use or disclose this information, even if inadvertently, we could suffer serious harm to our reputation, financial condition and current and future business relationships. it is not always possible to deter employee misconduct, and the precautions we take to detect and prevent this activity may not always be effective. in addition, the sec recently has increased its scrutiny of the use of non-public information obtained from corporate insiders by professional investors. misconduct by our employees, or even unsubstantiated allegations of misconduct, could result in an adverse effect on our reputation and our business.improper disclosure of personal data could result in liability and harm our reputation. we and our service providers store and process personal client information. it is possible that the security controls, training and other processes over personal data may not prevent the improper disclosure of client information. such disclosure could harm our reputation as well and subject us to liability, resulting in increased costs or loss of revenue.failure to properly address conflicts of interest could harm our reputation, business and results of operations. as we expand the scope of our business and our client base, we must continue to monitor and address any conflicts between our interests and those of our clients. the sec and other regulators have increased their scrutiny of potential conflicts of interest, and we have implemented procedures and controls that we believe are reasonably designed to address these issues. however, appropriately dealing with conflicts of interest is complex and if we fail, or appear to fail, to deal appropriately with conflicts of interest, we could face reputational damage, litigation or regulatory proceedings or penalties, any of which could adversely affect our reputation, business and results of operations. if our techniques for managing risk are ineffective, we may be exposed to material unanticipated losses. in order to manage the significant risks inherent in our business, we must maintain effective policies, procedures and systems that enable us to identify, monitor and control our exposure to operational, legal and reputational risks. our risk management methods may prove to be ineffective due to their design or implementation, or as a result of the lack of adequate, accurate or timely information or otherwise. if our risk management efforts are ineffective, we could suffer losses that could have an adverse effect on our financial condition or operating results. additionally, we could be subject to litigation, particularly from our clients, and sanctions or fines from regulators. our techniques for managing risks in client portfolios may not fully mitigate the risk exposure in all economic or market environments, or against all types of risk, including risks that we might fail to identify or anticipate.the cost of insuring our business is substantial and may increase. our insurance costs are substantial and can fluctuate significantly from year to year. in addition, certain insurance coverage may not be available or may only be available at prohibitive costs. as we renew our insurance policies, we may be subject to additional costs resulting from rising premiums, the assumption of higher deductibles or co-insurance liability and, to the extent certain of our mutual funds purchase separate director and officer or errors and omissions liability coverage, an increased risk of insurance companies disputing responsibility for joint claims. in addition, we intend to obtain additional liability insurance for our directors and officers in connection with this offering. higher insurance costs and incurred deductibles, as with any expense, would reduce our net income.we may elect to pursue growth in the united states and abroad through acquisitions or joint ventures, which | -0.151913 | 92.02 | 1261.15 | 178.833 | 150000000 | 329.992 | False | 2011 |
| 7 | 3.0 | 60.5 | 10000.0 | NaN | ROCKVILLE | 9.0000 | -0.014 | 100.00 | 10877.81 | False | NASDQ | False | False | Finance | Insurance | Other | NaN | 60500000.0 | HealthExtras Inc | NaN | 880000.0 | Warburg Dillon Read Inc | 3336.16 | NaN | 6.0 | 0 | 8 | 1.0 | 11.0 | NaN | True | NaN | 0 | 7.438375 | 8.0010 | 8.001 | 59.507 | Risk Factors -------------------------------------------------------------------------------- You should consider carefully the following risk factors and all other information contained in this prospectus before purchasing our common stock Investing in our common stock involves a high degree of risk. Any of the following risks could materially harm our business, operating results and financial condition and could result in a complete loss of your investmentAdditional risks and uncertainties that are not yet identified or that we currently think are immaterial may also harm our business, operating results and financial condition in the future RISKS RELATED TO OUR BUSINESS Because we have a limited operating history, our business prospects are subject to a great deal of uncertaintyWhile our product development efforts have been ongoing for the past two years, we only began revenue generating activities in January 1999. This limited history of operating our business means that you have little basis on which to evaluate us and our prospects and that our business prospects are subject to a great deal of uncertainty and risksWe have not been profitable and may not become profitable in the future We incurred operating losses of approximately $4.7 million in 1997, $6.5 million in 1998 and $6.5 million for the nine months ended September 30, 1999, and at September 30, 1999, we had an accumulated deficit of $19.1 millionBecause we plan to continue to significantly increase our operating expenses in an attempt to increase our member base, we will need to generate significantly higher revenues to achieve profitability. Even if we achieve profitability, we may not be able to maintain profitability in the future. In addition, as our business model evolves, we expect to introduce a number of new products and services that may or may not be profitable for usOur future profitability is dependent, to a significant extent, upon increased consumer demand for additional products, which we are in the process of developing or may develop in the future Most of our revenue currently is derived from members purchasing membership programs which include disability benefits. We believe our future profitability is dependent upon achieving substantial increases in sales of our programs, including those providing excess health insurance coverage and other benefits we are developing or may develop in the future. To the extent these products include insurance features, they generally will require regulatory approvalsIf we do not achieve these increased sales, we may never achieve profitability If the sale of our membership programs over the Internet does not achieve widespread consumer acceptance, we may never achieve profitability To date, we primarily have promoted our membership programs through mailings to credit card or other customers of banks. However, we intend to significantly increase the distribution of our programs over the Internet. Thus, our future profitability is dependent in large part on our ability to achieve widespread consumer acceptance of purchasing our programs over the Internet. The development of an online market for programs, such as those we offer, has only recently begun, is rapidly evolving and likely will be characterized by an increasing number of market entrants. Therefore, there is significant uncertainty with respect to the viability and growth potential of this marketOur future growth, if any, will depend on, among other things, the following critical factors: . the growth of the Internet as a commerce medium generally, and as a market for consumer financial and insurance products and services specifically; . success in persuading consumers to purchase their own supplemental health and disability benefits, rather than, or in addition to, group insurance offered through their employer; 4 . success in cost-effectively marketing our programs to a sufficiently large number of consumers; . our ability to fulfill coverage requests on an efficient and timely basis; and . assuring consumers that the benefits in our programs purchased online are reliable.There can be no assurance that an online market for our programs will develop or that consumers will significantly increase their use of the Internet for obtaining the types of products and services included in the programs that we sell. If an online market for these products fails to develop, or develops more slowly than we expect, or if our programs do not achieve widespread market acceptance, the prospects for our achieving profitable operations will be significantly reducedIf we lose one or more of our marketing relationships, our access to potential customers would decline and sales and revenues would suffer A substantial majority of all of our programs sold to date have been through mailings sent by banks to their credit card and other customers. If we lose one or more of our marketing relationships with credit card issuers and are unable to replace those relationships with other marketing outlets, our access to potential customers would decline and sales and revenues would sufferIf we are not able to achieve a high level of brand recognition and consumer demand for our programs, we will not achieve the level of revenues we need to be profitable There are a growing number of websites that offer consumers access to information regarding insurance coverage alternatives and product pricing. Our programs may be considered to compete with these and other distribution channels for insurance products. We believe that broader recognition of the HealthExtras brand and increased consumer demand for our programs are essential to our future success. To attempt to achieve that recognition and demand, we intend to continue to pursue an aggressive brand-enhancement strategy consisting of our traditional print advertising, as well as national radio and television advertising, online marketing and promotional efforts. This effort will require significantly greater expenditures than we have been able to make to date. If these expenditures do not result in a sufficient increase in revenues, we will not achieve profitability. In addition, we may expand our programs to include additional types of insurance and services. A portion of any increased selling and marketing expenditures could be used to promote these new programs. We have no assurance that there will be any market acceptance for new programs. Failure to generate sufficient revenues to cover the related expenditures of new products would reduce our chances to become profitableThe loss of our relationship with Christopher Reeve to promote our programs could significantly impair our brand recognition and, thus, our ability to sell our programs Our agreement for Christopher Reeve to promote our programs currently expires in July 2002. The loss of the Christopher Reeve identification with our programs, upon termination of our contract or otherwise, could significantly reduce our ability to sell our programsIf we lose our relationships with our benefit providers, we could have difficulty meeting demand for the products and services included in the programs we sell Supplemental health and disability insurance are key components of our programs. These insurance coverages are provided by Reliance National Insurance Company. Our contract with Reliance National expires in February 2002 and can be terminated by Reliance National prior to expiration if, among other things, we breach the contract or are the subject of regulatory action or excessive consumer complaints. In addition, Reliance National could decide to stop issuing insurance for our programs at any time. If Reliance National suspended or terminated our contract with them, or stopped issuing policies, we would not be able to offer our programs for sale until we obtained another insurance company to provide the insurance coverage. Any other insurance company would have to obtain regulatory approval in the various states for those insurance products. This could require an extended period of time.In addition, should Reliance be unable to maintain an insurance rating satisfactory to our distribution partners and potential customers, our program membership could be reduced. Also, our contract with Reliance includes a right of first refusal provision which could limit our ability to incorporate insurance products of other companies in our programs. In such circumstances, our revenues and profitability could be adversely affected. The Reliance National Insurance Group is rated A- (Excellent) by A.M. Best Co. On October 21, 1999, however, A.M. Best placed that rating of Reliance "under review with negative implications," and indicated it expected to complete its review during the first quarter of 2000. 5We are also dependent on the other providers of benefits included in our programs. These benefits are provided pursuant to arrangements that may be terminated on relatively short notice. If we lose these relationships and are unable to replace them quickly and cost effectively, we would not be able to satisfy consumer demand for our programsWe may experience significant fluctuations in our quarterly results of operations which will make it difficult for investors to make reliable period- to-period comparisons and may contribute to volatility in our stock price Our quarterly expenses have fluctuated significantly in the past, and we expect our quarterly revenues and expenses to continue to fluctuate significantly in the future. The causes for fluctuations could include, among other factors: . changes in acceptance levels for our benefit program by consumers; . our levels of marketing expenditures; . renewal rate experience for our benefit programs; . the initiation of new or increased distribution methods, services and products by our competitors; . price competition by insurance companies in their sale of insurance products; and . the level of Internet use to purchase insurance or similar type products.We believe that quarter-to-quarter comparisons of our operating results are not necessarily meaningful and not good indicators of our future performance Due to the above-mentioned and other factors, it is possible that in one or more future quarters our operating results will fall below the expectations of securities analysts and investors. If this happens, the trading price of our common stock would likely decreaseIf we do not manage our growth effectively, we will not be able to operate profitably We only began offering our programs this year, and we have been expanding our operations rapidly. Our growth strategy, if successful, will result in further expansion. We can achieve profitable operation, however, only if we are able to manage our growth effectively. Our growth in operations has placed significant demands on our management and other resources, which is likely to continueUnder these conditions, it is important for us to retain our existing management and to attract, hire and retain additional highly skilled and motivated officers, managers and employees and improve existing systems and/or implement new systems for: . transaction processing; . operational and financial management; and . training, integrating and managing our growing employee base.We may not be successful in managing or expanding our operations or maintaining adequate management, financial and operating systems and controls If the providers of the benefits included in our programs fail to provide those benefits, we could become subject to liability claims by our program members We arrange for the provision by others of the benefits included in our member programs. If the firms with which we have contracted to provide those benefits fail to provide them as required, or are negligent or otherwise culpable in providing them, we could become involved in any resulting claim or litigationCompetition could hinder our ability to build our membership base and prevent us from achieving profitable operations The markets for the benefit products and services included in the programs we offer are intensely competitive and characterized by changing technology, evolving regulatory requirements and changing consumer demands. If we are not able to compete in those markets and under those circumstances, our ability to build our membership base would be hindered and we would not be able to achieve profitable operations. We compete with both traditional insurance distributions channels, including insurance agents and brokers, new non-traditional channels such as commercial banks and savings and loan associations, and a growing number of distributors.We also potentially face competition from a number of large online services that have expertise in developing online commerce and in facilitating a high volume of Internet traffic. Other large companies with strong brand recognition, technical expertise and experience in online commerce and direct marketing also 6 could seek to compete in the online market for insurance and similar productsAny of these firms could seek to compete against us through traditional channels or by copying the products and services included in the programs we sell or our business model. There can be no assurance that we will be able to compete successfully with any of these current or potential competitorsRISKS RELATED TO REGULATION If we fail to comply with all of the various and complex laws and regulations governing our business, we could be subject to fines, additional licensing requirements or the inability to market in particular jurisdictions Complex laws, rules and regulations of each of the 50 states and the District of Columbia pertaining to insurance impose strict and substantial requirements on insurance coverage sold to consumers and businesses. Compliance with these laws, rules and regulations can be arduous and imposes significant costs. The underwriter of the insurance benefits included in HealthExtras programs is responsible for obtaining and maintaining regulatory approvals for those benefits. If the appropriate regulatory approvals for the insurance benefits included in our programs are not maintained, we would have to stop including those benefits. An independent licensed insurance agency is responsible for the solicitation of insurance benefits involved in HealthExtras programs. Each jurisdiction's insurance regulator typically has the power, among other things, . administer and enforce the laws and promulgate rules and regulations applicable to insurance, including the quotation of insurance premiums; . approve policy forms and regulate premium rates; . regulate how, by which personnel and under what circumstances, an insurance premium can be quoted and published; and . regulate the solicitation of insurance and license insurance companies, agents and brokers who solicit insurance.State insurance laws and regulations are complex and broad in scope and are subject to periodic modification as well as differing interpretations. There can be no assurance that insurance regulatory authorities in one or more states will not determine that the nature of our business requires us to be licensed under applicable insurance laws. A determination to that effect or that we or our business partners are not in compliance with applicable regulations could result in fines, additional licensing requirements or inability to market our programs in particular jurisdictions. Such penalties could significantly increase our general operating expenses and harm our business. In addition, even if the allegations in any regulatory or legal action against us turn out to be false, negative publicity relating to any such allegation could result in a loss of consumer confidence and significant damage to our brand. We believe that because many consumers and insurance companies are not yet comfortable with the concept of purchasing insurance online, the publicity relating to any such regulatory or legal issues could significantly reduce sales of our programsRegulation of the sale of insurance over the Internet and of electronic commerce generally is unsettled, and future laws, regulations and interpretations could hinder our ability to offer programs over the Internet The distribution of our programs including an insurance component over the Internet subjects us to additional risk as most insurance laws and regulations have not been modified to clarify or amend their application to Internet transactions. Currently, many state insurance regulators and legislators are exploring the need for specific regulation of insurance sales over the Internet. Such regulation could dampen the growth of the Internet as a means of providing insurance services. Moreover, the application of laws governing general commerce on the Internet remains largely unsettled, even in areas where there has been some legislative action. It may take years to determine whether and how existing laws such as those governing insurance, intellectual property, privacy and taxation apply to the Internet. In addition, the growth and development of the market for electronic commerce may prompt calls for more stringent consumer protection laws and regulations that may impose additional burdens on companies conducting business over the Internet. Any new laws or regulations or new interpretations of existing laws or regulations relating to the Internet could hinder our ability to offer programs over the Internet. 7 We could be subject to legal liability based upon the information on our websiteOur members may rely upon the information published on our website regarding insurance coverage, exclusions, limitations and ratings, and the other benefits included in our programs. To the extent that the information we provide is not accurate, we could be liable for damages. These types of claims could be time- consuming and expensive to defend, divert management's attention, and could cause consumers to lose confidence in our service. As a result, these types of claims, whether or not successful, could harm our businessRISKS RELATED TO THE INTERNET AND ELECTRONIC COMMERCE If we experience failures of, or capacity constraints in, our systems or the systems of third parties on which we rely, sales of our programs likely would be reduced and our reputation could be damaged We use both internally developed and third-party systems to operate the Internet aspects of our business. If the number of users of our service increases substantially, we will need to significantly expand and upgrade our technology, transaction processing systems and network infrastructure. We do not know whether we will be able to accurately project the rate or timing of any increases, or expand and upgrade our systems and infrastructure to accommodate any increases in a timely manner. Our ability to facilitate transactions successfully and provide high quality customer service also depends on the efficient and uninterrupted operation of our computer and communications hardware systems. Our service has experienced periodic system interruptions, and it is likely that these interruptions will continue to occur from time to time. Additionally, our systems and operations are vulnerable to damage or interruption from human error, natural disasters, power loss, telecommunication failures, break-ins, sabotage, computer viruses, acts of vandalism and similar events. We may not carry sufficient business interruption insurance to compensate for losses that could occur. Any system failure that causes an interruption in service or decreases the responsiveness of our service would impair our revenue-generating capabilities, and could damage our reputation and our brand nameIf we fail to adapt to rapid technological change, our ability to compete will be significantly impeded Our market is characterized by rapidly changing technologies, frequent new product and service introductions and evolving industry standards. Our future success will depend, in part, on our ability to adapt to rapidly changing technologies by continually improving the features and reliability of our service. We may experience difficulties that could delay or prevent the successful introduction or marketing of new products and services. In addition, new enhancements must meet the requirements of our current and prospective subscribers and must achieve significant market acceptance. We could also incur substantial costs if we need to modify our service or infrastructures or adapt our technology to respond to these changesIf we or our vendors experience Year 2000 problems, our ability to sell and service our programs would be disrupted The uncertainty posed by year 2000 issues could adversely affect our business in a number of significant ways. Although we believe that our internally developed systems and technology are year 2000 ready, our information technology system nevertheless could be substantially impaired or cease to operate due to year 2000 problems. Additionally, we rely on information technology supplied by third parties. Year 2000 problems that any third parties or we experience would disrupt our ability to sell and service our programsAdditionally, the Internet could face serious disruptions arising from year 2000 problems If we are unable to safeguard the security and privacy of our program members' information, our reputation would be damaged and we could be subject to litigation and liability A significant barrier to electronic commerce and online communications has been the need for secure transmission of confidential information over the Internet. Our ability to secure the transmission of confidential information over the Internet is essential in maintaining consumer confidence in our service. In addition, because we handle confidential and sensitive information about our program members, any security breaches would damage our reputation and could expose us to litigation and liability. We cannot guarantee that our systems will prevent security breachesIf the Internet does not continue to function to provide broad scale and dependable service as a transaction medium, we might not be able to achieve the substantial increases in sales of our programs which we believe are necessary to achieve profitability Our success will depend upon the maintenance of the Internet's infrastructure and its ability to cope with its significant growth and increased traffic. This will require a reliable network with the necessary 8 speed, data capacity and security, and the timely development of complementary products, such as high-speed modems, for providing reliable Internet access and services. Users of the Internet have experienced a variety of outages and other delays as a result of damage to portions of their infrastructure or that of their service providers, and we could face such outages and delays in the future. In addition, the Internet could lose its viability due to delays in the development or adoption of new standards to handle increased levels of activity or due to increased government regulation. The adoption of new standards or government regulation may require us to incur substantial compliance costsRISKS RELATED TO THIS OFFERING AND OWNERSHIP OF OUR COMMON STOCK Because our shares have not been publicly traded before this offering, the public offering price may not accurately reflect the trading price of our stock, and our stock price may be volatile Prior to this offering, you could not buy or sell our common stock publiclyAn active public market for our common stock may not develop or be sustained after this offering. Although the public offering price will be negotiated between the underwriters and us based on several factors, the market price after the offering may vary from the public offering price. The market price of our common stock is likely to be highly volatile and could be subject to wide fluctuations. Recently, the stock market has experienced significant price and volume fluctuations, and the market prices of securities of Internet-related companies in particular have been highly volatile. Market fluctuations, as well as general political and economic conditions, such as a recession or interest rate or currency rate fluctuations, could adversely affect the market price of our common stock. In addition, the market prices for stocks of Internet-related companies, particularly following an initial public offering, have been known to reach levels that bear no relationship to the operating performance of such companies. Such market prices generally are not sustainable and are subject to wide variations. If our common stock trades to such levels following this offering, it likely will thereafter experience a material decline.In the past, securities class action litigation has often been brought against a company following periods of volatility in the market price of their securities. We may in the future be the target of similar litigation Securities litigation could result in substantial costs, divert management's attention and resources, and harm our financial condition and results of operationsFuture sales of our common stock may cause our stock price to decline Future sales of our common stock, or the availability of our common stock for sale, may cause our stock price to decline. After this offering, we will have 27,600,000 shares of common stock outstanding. The federal securities laws impose restrictions on the ability of stockholders who acquired their shares prior to this offering to resell their shares. Also, all holders of common stock or securities convertible into or exercisable or exchangeable for common stock issued prior to the offering and all of our officers have agreed, subject to certain limited exceptions, not to sell their shares for a period of 180 days after the date of this prospectus. After these restrictions lapse, the holders of these restricted shares may choose to sell some or all of their holdings. In addition, holders of substantially all of our shares of common stock outstanding prior to this offering have registration rights with respect to such sharesOur existing shareholders will own a substantial majority of our stock and will continue to control us after this offering; their interests may not be the same as that of our public stockholders Following this offering, Highland Investments, LLC and Health Partners will control 80.1% of our outstanding common stock. For information regarding the control of Highland Investments and Health Partners, see "Principal Stockholders." As a result, if these stockholders act together, they will be able to take any of the following actions without the approval of our public stockholders: . elect our directors; . amend certain provisions of our charter; . approve a merger, sale of assets or other major corporate transaction; . defeat any takeover attempt, even if it would be beneficial to our public stockholders; and . otherwise control the outcome of all matters submitted for a stockholder vote. 9 | NaN | 19.93 | 1388.91 | NaN | 60500000 | NaN | False | 1999 |
| 8 | 9.0 | 139.1 | 10000.0 | 111.587367 | REDWOOD CITY | 17.0000 | 0.551 | 97.91 | 12268.63 | False | NASDQ | True | True | Business Equipment -- Computers, Software, and Electronic Equipment | Business Services | Business Equipment, Telephone and Television Transmission | 99999.5 | 139100000.0 | Bigband Networks Inc | 0.000000 | NaN | Morgan Stanley\nMerrill Lynch & Co Inc | 2416.15 | -25.367 | 14.0 | 18 | 5 | 12.0 | 13.0 | 0.375000 | False | 99999.5 | 1 | 8.601200 | 9.0010 | 9.001 | 43.006 | risk factors you should carefully consider the risks described below before making an investment decision. our business, prospects, financial condition or operating results could be materially adversely affected by any of these risks, as well as other risks not currently known to us or that we currently consider immaterial. the trading price of our common stock could decline due to any of these risks, and you may lose all or part of your investment. in assessing the risks described below, you should also refer to the other information contained in this prospectus, including our consolidated financial statements and the related notes, before deciding to purchase any shares of our common stock. risks related to our business we depend on the adoption of advanced technologies by cable operators and telephone companies for substantially all of our net revenues, and any decrease or delay in capital spending for these advanced technologies would harm our operating results, financial condition and cash flows. substantially all of our sales are dependent upon the adoption of advanced technologies by cable operators and telephone companies, and we expect these sales to continue to constitute a significant majority of our sales for the foreseeable future. demand for our products will depend on the magnitude and timing of capital spending by service providers on advanced technologies for constructing and upgrading their network infrastructure, and a reduction or delay in this spending could have a material adverse effect on our business. the capital spending patterns of our existing and potential customers are dependent on a variety of factors, including: available capital and access to financing; annual budget cycles; overall consumer demand for video, voice and data services and the acceptance of newly introduced services; competitive pressures, including pricing pressures; the impact of industry consolidation; the strategic focus of our customers and potential customers; technology adoption cycles and network architectures of service providers, and evolving industry standards that may impact them; the status of federal, local and foreign government regulation of telecommunications and television broadcasting, and regulatory approvals that our customers need to obtain; discretionary customer spending patterns; bankruptcies and financial restructurings within the industry; and general economic conditions. any slowdown or delay in the capital spending by service providers as a result of any of the above factors would likely have a significant impact on our quarterly revenue and profitability levels.our operating results are likely to fluctuate significantly and may fail to meet or exceed the expectations of securities analysts or investors or our guidance, causing our stock price to decline. our operating results have fluctuated in the past and are likely to continue to fluctuate, on an annual and a quarterly basis, as a result of a number of factors, many of which are outside of our control. these factors include: the level and timing of capital spending of our customers, both in the united states and in international markets; the timing, mix and amount of orders, especially from significant customers; 7 changes in market demand for our products; our ability to secure significant orders from telephone companies; our mix of products sold between video products, which generally have higher margins, and our cable modem termination system, or cmts, data products, which generally have lower margins; the mix of software and hardware products sold; our unpredictable and lengthy sales cycles, which typically range from nine to eighteen months; the timing of revenue recognition on sales arrangements, which may include multiple deliverables; new product introductions by our competitors; market acceptance of new or existing products offered by us or our customers; competitive market conditions, including pricing actions by our competitors; our ability to complete complex development of our software and hardware on a timely basis; our ability to design, install and receive customer acceptance of our products; unexpected changes in our operating expense; the potential loss of key manufacturer and supplier relationships; the cost and availability of components used in our products; changes in domestic and international regulatory environments; and the impact of new accounting rules. we establish our expenditure levels for product development and other operating expense based on projected sales levels, and our expenses are relatively fixed in the short term. accordingly, variations in the timing of our sales can cause significant fluctuations in operating results. as a result of all these factors, our operating results in one or more future periods may fail to meet or exceed the expectations of securities analysts or investors or our guidance, which would likely cause the trading price of our common stock to decline substantially.we anticipate that our gross margins will fluctuate with changes in our product mix and expected decreases in the average selling prices of our products, which may adversely impact our operating results. our industry has historically experienced a decrease in average selling prices. we anticipate that the average selling prices of our products will decrease in the future in response to competitive pricing pressures, increased sales discounts and new product introductions by our competitors. we may experience substantial decreases in future operating results due to the decrease of our average selling prices. to maintain our gross margin levels, we must develop and introduce on a timely basis new products and product enhancements as well as continually reduce our product costs. our failure to do so would likely cause our revenue and gross margins to decline, which could have a material adverse effect on our operating results and cause the price of our common stock to decline. we also anticipate that our gross margins will fluctuate from period to period as a result of the mix of products we sell in any given period, with our video products generally yielding higher gross margins than our data products. if our sales of these lower margin products significantly expand in future quarterly periods, our overall gross margin levels and operating results would be adversely impacted.our continued growth will depend significantly on our ability to deliver products that help enable telephone companies to provide video services. if the projected growth in demand for video services from telephone companies does not materialize or if these service providers find alternative methods of delivering video services, future sales of our video products will suffer. prior to 2006, our sales were principally to cable operators. in 2006, however, we generated significant sales from telephone companies. our growth is dependent on our ability to sell video products to telephone companies that are increasingly reliant on the delivery of video services to their customers. although a number of our 8 existing products are being deployed in these networks, we will need to devote considerable resources to obtain orders, qualify our products and hire knowledgeable personnel to address telephone company customers, each of which will require significant time and financial commitment. these efforts may not be successful in the near future, or at all. if technological advancements allow these telephone companies to provide video services without upgrading their current system infrastructure or that allow them a more cost-effective method of delivering video services than our products, projected sales of our video products will suffer. even if these providers choose our video products, they may not be successful in marketing video services to their customers, in which case additional sales of our products would likely be reduced. selling successfully to the telephone company market will be a significant challenge for us. several of our largest competitors, such as cisco systems and motorola corporation, have mature customer relationships with many of the largest telephone companies, while we have limited recent experience with sales and marketing efforts designed to reach these potential customers. in addition, telephone companies face specific network architecture and legacy technology issues that we have only limited expertise in addressing. if we fail to penetrate the telephone company market successfully, our growth in revenues and operating results would be correspondingly limited.our customer base has become increasingly concentrated, and there are a limited number of potential customers for our products. the loss of any of our key customers would likely reduce our revenues significantly. historically, a large portion of our sales have been to a limited number of customers. sales to our five largest customers accounted for approximately 90% of our net revenues in the three months ended december 31, 2006, approximately 79% of our net revenues in the year ended december31, 2006, approximately 69% of our net revenues in the year ended december31, 2005, and approximately 61% of our net revenues in the year ended december31, 2004. in 2006, comcast, cox, time warner cable and verizon each represented 10% or more of our net revenues. in 2005, adelphia, cox and time warner cable each represented 10% or more of our net revenues. in 2004, adelphia, comcast, cox and time warner cable each represented 10% or more of our net revenues. we anticipate that a large portion of our revenues will continue to depend on sales to a limited number of customers, and we do not have contracts or other agreements that guarantee continued sales to these or any other customers. in addition, as the consolidation of ownership of cable operators and telephone companies continues, we may lose existing customers and have access to a shrinking pool of potential customers. we expect to see continuing industry consolidation and customer concentration due to the significant capital costs of constructing video, voice and data networks and for other reasons. for example, adelphia, formerly the fifth largest cable company in the united states, which accounted for 5% of our net revenue in the year ended december31, 2006, was sold in 2006 to comcast and time warner cable, the two largest u.s. cable operators. further business combinations may occur in our customer base which will result in increased purchasing leverage by these customers over us. this may reduce the selling prices of our products and services and as a result may harm our business and financial results. many of our customers desire to have two sources for the products we sell to them. as a result, our future revenue opportunities could be limited, and our profitability could be adversely impacted. the loss of, or reduction in orders from, any of our key customers would significantly reduce our revenues and have a material adverse impact on our business, operating results and financial condition.the timing of a significant portion of our net revenues is dependent on complex systems integration. we derive a significant portion of our net revenues from sales that include the network design, installation and integration of equipment, including equipment acquired from third parties to be integrated with our products to the specifications of our customers. we base our revenue forecasts on the estimated timing to complete the network design, installation and integration of our customer projects and customer acceptance of those products. the systems of our customers are both diverse and complex, and our ability to configure, test and integrate our systems with other elements of our customers networks is dependent upon technologies provided to our 9 customers by third parties. as a result, the timing of our revenue related to the implementation of our product applications in these complex networks is difficult to predict and could result in lower than expected revenue in any particular quarter. similarly, our ability to deploy our equipment in a timely fashion can be subject to a number of other risks, including the availability of skilled engineering and technical personnel, the availability of equipment produced by third parties and our customers need to obtain regulatory approvals.if revenues forecasted for a particular period are not realized in such period due to the lengthy, complex and unpredictable sales cycles of our products, our operating results for that or subsequent periods will be harmed. the sales cycles of our products are typically lengthy, complex and unpredictable and usually involve: a significant technical evaluation period; a significant commitment of capital and other resources by service providers; substantial time required to engineer the deployment of new technologies or new video, voice and data services; substantial testing and acceptance of new technologies that affect key operations; and substantial test marketing of new services with subscribers. for these and other reasons, our sales cycles generally have been between nine and eighteen months, but can last longer. if orders forecasted for a specific customer for a particular quarter do not occur in that quarter, our operating results for that quarter could be substantially lower than anticipated. our quarterly and annual results may fluctuate significantly due to revenue recognition policies and the timing of the receipt of orders.we only recently became profitable, and we may not be able to sustain profitability in future periods. the three-month periods ended september30, 2006 and december31, 2006 have been the only fiscal quarters in which we have achieved profitability. we were profitable for our 2006 fiscal year; however, we reported losses for our 2005 and 2004 fiscal years. we are continuing to incur increased research and development, sales and marketing, and general and administrative expenses. as a result, we may not be able to sustain profitability in future fiscal quarters or achieve profitability on an annual basis in the future.our independent registered public accountants have identified and reported to us material weaknesses in our internal controls for the years ended december31, 2004 and 2005 that, if not properly remediated, could result in material misstatements in our financial statements in future periods and impair our ability to comply with the accounting and reporting requirements applicable to public companies. in connection with the audits of our consolidated financial statements for each of the years ended december31, 2004 and 2005, our independent registered public accounting firm identified material weaknesses in our internal control over financial reporting under the standards established by the american institute of certified public accountants. our independent registered public accounting firm has indicated that the material weaknesses in our revenue recognition process and financial statement closing process resulted from having insufficient procedures in place and an insufficient number of qualified resources in our finance department with the required proficiency to apply our accounting policies in accordance with u.s. generally accepted accounting principles, or gaap. our independent registered public accounting firm was not, however, engaged to audit the effectiveness of our internal control over financial reporting. if such an evaluation had been performed or when we are required to perform such an evaluation, additional material weaknesses, significant deficiencies and other control deficiencies may have been or may be identified. ensuring that we have adequate internal financial and accounting controls and procedures in place to help produce accurate financial statements on a timely basis is a costly and time-consuming effort that needs to be evaluated frequently, as described further under we will incur increased costs and demands upon management as a result of complying with the laws and regulations affecting public companies, which could adversely affect our operating results. 10 because of these material weaknesses, there is heightened risk that a material misstatement of our annual or quarterly financial statements will not be prevented or detected. while we have completed our remediation efforts to address these material weaknesses, we cannot assure you that these remediation efforts have been entirely successful or that similar material weaknesses will not recur. once we become a public company, we will be required to comply with the requirements of section404 of the sarbanes-oxley act of 2002 as of december31, 2008 and subsequent fiscal years. in the event that we have not adequately remedied these material weaknesses, and if we fail to maintain proper and effective internal controls in future periods, it could adversely affect our operating results, financial condition and our ability to run our business effectively and could cause investors to lose confidence in our financial reporting.if we do not adequately manage and evolve our financial reporting and managerial systems and processes, our operating results and financial condition may be harmed. our ability to successfully implement our business plan and comply with regulations applicable to being a public reporting company requires an effective planning and management process. we expect that we will need to continue to improve existing, and implement new, operational and financial systems, procedures and controls to manage our business effectively in the future. any delay in the implementation of, or disruption in the transition to, new or enhanced systems, procedures or controls, could harm our ability to accurately forecast sales demand, manage our supply chain and record and report financial and management information on a timely and accurate basis. in addition, the successful enhancement of our operational and financial systems, procedures and controls will result in higher general and administrative costs in future periods, and may adversely impact our operating results and financial condition. in connection with our implementation, in the third quarter of 2006, of more stringent controls related to contracts for providing customer support, we discovered that certain end users in china maintained that they were entitled to company-provided support, while our contracts with these customers did not provide for customer support. in response, the audit committee of our board of directors conducted an independent investigation of the matter, employing independent counsel and an independent accounting firm. the investigation, which was completed in december 2006, found numerous instances in which resellers of our product applications in china, with the understanding and approval of our china personnel, agreed to provide technical support, extended warranty terms and potentially other undefined terms without proper documentation and without communicating these arrangements to our legal and finance departments. as a result, we have deferred approximately $5.1 million in revenue as of december31, 2006 from customers in china, which will be recognized in future periods if we satisfy all of the elements of our revenue recognition criteria. our controls previously in place did not prevent these occurrences and we have therefore implemented a number of additional controls and remedial actions to ensure the appropriate accounting of future transactions and control over contracts with end users in china. in the event that we have not adequately implemented these additional controls and remedial actions, additional material weaknesses could be identified and could cause investors to lose confidence in our financial reporting.we may not accurately anticipate the timing of the market needs for our products and develop such products at the appropriate times, which could harm our operating results and financial condition. accurately forecasting and meeting our customers requirements is critical to the success of our business. forecasting to meet customers needs is particularly difficult in connection with newer products and products under development. our ability to meet customer demand depends on our ability to configure our product applications to the complex architecture that our customers have developed, the availability of components and other materials and the ability of our contract manufacturers to scale their production of our products. our ability to meet customer requirements depends on our ability to obtain sufficient volumes of these components and materials in a timely fashion. if we fail to meet customers supply expectations, our net revenues will be adversely affected, and we will likely lose business. in addition, our priorities for future product development are based on our expectations of how the market for video, voice and data services will continue to develop in the united states and in international markets. if the market for such services develops more rapidly than we 11 anticipate, then our product development efforts may be behind, which may result in our being unable to recoup our capital spent on product development as a result of a missed market opportunity. conversely, if the market develops more slowly than we anticipate, we may find that we have expended significant capital on product development prior to our being able to generate any revenues for those products. if we are unable to accurately time our product introductions to meet market demand, it could have a material adverse impact on our operating results and financial condition. in addition, if actual orders are materially lower than the indications we receive from our customers, our ability to manage inventory and expenses will also be harmed. if we enter into purchase commitments to acquire components and materials, or expend resources to manufacture products, and those products are not purchased by our customers when expected, our business and operating results could suffer.we need to develop and introduce new and enhanced products in a timely manner to remain competitive, and our product development efforts require substantial research and development expense. the markets in which we compete are characterized by continuing technological advancement, changes in customer requirements and evolving industry standards. to compete successfully, we must design, develop, manufacture and sell new or enhanced products that provide increasingly higher levels of performance and reliability and meet the cost expectations of our customers. our product development efforts require substantial research and development expense. research and development expense in the year ended december31, 2006 was $37.2million, in the year ended december31, 2005 was $30.7million and in the year ended december31, 2004 was $21.6million. there can be no assurance that we will achieve an acceptable return on our research and development efforts. we are currently developing a modular cable modem termination system, or m-cmts, that we believe will be important for our future revenue growth and operating results. if we fail to deliver our m-cmts product to market in a timely and cost-effective manner, or if our m-cmts product fails to operate with all the functionality our customers expect, our future operating results would be harmed. likewise, new technologies, standards and formats are being adopted by our customers. while we are in the process of developing products based on many of these new formats in order to remain competitive, we do not have such products at this time and cannot be certain when, if at all, we will have products in support of such new formats.our future growth depends on market acceptance of several emerging video, voice and data services, on the adoption of new network architectures and technologies and on several other industry trends. future demand for our products will depend significantly on the growing market acceptance of several emerging video, voice and data services, including high-speed data services; hdtv; addressable advertising; video delivered over telephone company networks; and voip. the effective delivery of these services will depend on service providers developing and building new network architectures to deliver them. if the introduction or adoption of these services or the deployment of these networks is not as widespread or as rapid as we or our customers expect, our revenue growth will be limited. furthermore, we expect the extent and nature of regulatory attitudes towards issues such as competition among service providers, access by third parties to networks of other service providers and new services such as voip to impact our customers purchasing decisions. if service providers do not pursue the opportunity to offer integrated video, voice and data services as aggressively as we expect, our revenue growth would be limited.the markets in which we operate are intensely competitive, and many of our competitors are larger, more established and better capitalized than we are. the markets for selling network-based hardware and software products to service providers are extremely competitive and have been characterized by rapid technological change. in the cmts market, we compete 12 principally with cisco systems, motorola and arris. in the video market, we compete broadly with system suppliers including harmonic, motorola, scientific atlanta (a division of cisco systems), seachange international, tandberg television (which recently announced that it will be acquired by arris), terayon communication systems and a number of smaller companies. we may not be able to compete successfully in the future, which may harm our business. many of our competitors are substantially larger and have greater financial, technical, marketing and other resources than us. given their capital resources, many of these large organizations are in a better position to withstand any significant reduction in capital spending by customers in these markets. they often have broader product lines and market focus and are not as susceptible to downturns in a particular market. in addition, many of our competitors have been in operation much longer than we have and therefore have more long-standing and established relationships with domestic and foreign service providers. if any of our competitors products or technologies were to become the industry standard, our business would also be seriously harmed. if our competitors are successful in bringing their products to market earlier, or if their products are more technologically capable than ours, then our sales could be materially adversely affected. recently, we have seen rapid consolidation among our competitors, such as ciscos acquisition of scientific atlanta and purchases of vod solutions by each of cisco, harmonic and motorola. in addition, some of our competitors have entered into strategic relationships with one another to offer a more comprehensive solution than would be available individually. we expect this trend to continue as companies attempt to strengthen or maintain their market positions in the evolving industry for video. many of the companies driving this consolidation trend have significantly greater financial, technical and other resources than we do, and are much better positioned than we are to offer complementary products and technologies. these combined companies may offer more compelling product offerings and be able to offer greater pricing flexibility, making it more difficult for us to compete while sustaining acceptable gross margins. finally, continued industry consolidation may impact customers perceptions of the viability of smaller companies, which may affect their willingness to purchase products from us. these competitive pressures could harm our business, operating results and financial condition.in the event that certain of our competitors integrate products performing functions similar to our products into their existing network infrastructure offerings, our existing and potential customers may decide against using our products in their networks, which would harm our business. other providers of network-based hardware and software products are offering or announcing functionality aimed at solving similar problems addressed by our products. for example, several vendors have recently announced their intention to develop a switched broadcast product application. the inclusion of, or the announcement of the intent to include, functionality perceived to be similar to our product offerings in our competitors products that have been accepted as necessary components of network architecture may have an adverse effect on our ability to market and sell our products. furthermore, even if the functionality offered by other network infrastructure providers is more limited than our products, a significant number of customers may elect to accept such limited functionality in lieu of adding components from a different vendor. many of our existing and potential customers have invested substantial personnel and financial resources to design and operate their networks and have mature relationships with other providers of network infrastructure products, which may make them reluctant to add new components to their networks, particularly from new vendors. in addition, our customers other vendors with a broader product offering may be able to offer pricing or other concessions that we are not able to match because we currently offer a more modest suite of products and have fewer resources. if our existing or potential customers are reluctant to add network infrastructure from new vendors or otherwise decide to work with their existing vendors, our business, operating results and financial condition will be adversely affected.we need to develop additional distribution channels to market and sell our products. the majority of our sales to date have been direct sales to large cable operators in north america. our video products have been traditionally sold to large cable operators with recent sales to telephone companies. we have 13 not focused on smaller service providers and have had only limited access to service providers in certain international markets, including asia and europe. although we intend to establish strategic relationships with leading distributors worldwide in an attempt to reach new customers, we may not succeed in establishing these relationships. even if we do establish these relationships, the distributors may not succeed in marketing our products to their customers. some of our competitors have established long-standing relationships with cable operators and telephone companies that may limit our and our distributors ability to sell our products to those customers. even if we were to sell our products to those customers, it would likely not be based on long-term commitments, and those customers would be able to terminate their relationships with us at any time without significant penalties.we depend on a limited number of third parties to manufacture, assemble and supply our products. we obtain many components and modules necessary for the manufacture or integration of our products from a sole supplier or a limited group of suppliers, with whom we do not generally maintain long-term agreements. our reliance on sole or limited suppliers involves several risks, including the inability to obtain an adequate supply of required components or modules and reduced control over pricing, quality and timely delivery of components. for example, we depend exclusively on broadcom for one of the chipsets in our cmts product. our ability to deliver our products on a timely basis to our customers would be materially adversely impacted if we needed to find alternative replacements for the chipsets, central processing units or power supplies that we use in our products. significant time and effort would be required to locate new vendors for these alternative components, if alternatives are even available to us. in addition, the lead times associated with certain components are lengthy and preclude rapid changes in quantity requirements and delivery schedules. in addition, increased demand by third parties for the components we use in our products may lead to decreased availability and higher prices for those components, since we carry little inventory of our products and product components. as a result, we may not be able to secure sufficient components at reasonable prices or of acceptable quality to build products in a timely manner, which would | -0.116050 | 18.73 | 1406.82 | 218.586 | 139100000 | 176.510 | True | 2007 |
| 9 | 36.0 | 123.0 | NaN | 271.269114 | ENFIELD | 13.1000 | NaN | 52.93 | 9972.18 | False | NYSE | False | True | Manufacturing -- Machinery, Trucks, Planes, Off Furn, Paper, Com Printing | Rubber and Plastic Products | Manufacturing, Energy, and Utilities | 6378.0 | 123000000.0 | STR Holdings Inc | 0.372381 | NaN | Credit Suisse\nGoldman Sachs & Co | 2154.47 | 22.989 | 9.0 | 0 | 7 | 3.0 | 10.0 | 0.571429 | True | 6378.0 | 0 | 4.286286 | 4.5005 | 9.001 | 30.004 | risk factors an investment in our common stock involves a high degree of risk. you should carefully consider the following risks, as well as the other information contained in this prospectus, before making an investment in our company. if any of the following risks actually occurs, our business, results of operations or financial condition may be adversely affected. in such an event, the trading price of our common stock could decline and you could lose part or all of your investment. risks related to our solar businessif demand for solar energy in general and solar modules in particular does not continue to develop or takes longer to develop than we anticipate, sales in our solar business may not grow or may decline, which would negatively affect our financial condition and results of operations. we expect that a significant amount of the growth in our overall business will come from the sale of encapsulants by our solar business. because our encapsulants are used in the production of solar modules, our financial condition and results of operations and future growth are tied to a significant extent to the overall demand for solar energy and solar modules. the solar energy market is at a relatively early stage of development and the extent to which solar modules will be widely adopted is uncertain. many factors may affect the viability and widespread adoption of solar energy technology and demand for solar modules, and in turn, our encapsulants, including: cost-effectiveness of solar modules compared to conventional and non-solar renewable energy sources and products; performance and reliability of solar modules compared to conventional and non-solar renewable energy sources and products; availability and amount of government subsidies and incentives to support the development and deployment of solar energy technology; rate of adoption of solar energy and other renewable energy generation technologies, such as wind, geothermal and biomass; seasonal fluctuations related to economic incentives and weather patterns; fluctuations in economic and market conditions that affect the viability of conventional and non-solar renewable energy sources, such as increases or decreases in the prices of fossil fuels and corn or other biomass materials; the current worldwide economic recession as well as volatility and disruption in the credit markets, which may continue to slow the growth of the solar industry, may continue to cause our customers to experience a reduction in demand for their products and related financial difficulties and may continue to adversely impact our solar business; fluctuations in capital expenditures by end users of solar modules, which tend to decrease when the overall economy slows down; the extent to which the electric power and broader energy industries are deregulated to permit broader adoption of solar electricity generation; and the cost and availability of polysilicon and other key raw materials for the production of solar modules. for example, in the first six months of 2009, we experienced a decline in our solar business mainly due to decreased global demand for solar energy as a result of legislative changes, such as the cap in feed-in tariffs in spain implemented in 2008, the ongoing global recession and the ongoing worldwide credit crisis. if demand for solar energy and solar modules fails to develop sufficiently, demand for our customers' products as well as demand for our encapsulants will decrease, and we may not be able to grow our business or solar net sales and our financial condition and results of operations will be harmed.a significant reduction or elimination of government subsidies and economic incentives or a change in government policies that promote the use of solar energy could have a material adverse effect on our business and prospects. demand for our encapsulants depends on the continued adoption of solar energy and the resultant demand for solar modules. demand for our products depends, in large part, on government incentives aimed to promote greater use of solar energy. in many countries in which solar modules are sold, solar energy would not be commercially viable without government incentives. this is because the cost of generating electricity from solar energy currently exceeds, and we believe will continue to exceed for the foreseeable future, the costs of generating electricity from conventional energy sources. the scope of government incentives for solar energy depends, to a large extent, on political and policy developments relating to environmental and energy concerns in a given country that are subject to change, which could lead to a significant reduction in, or a discontinuation of, the support for renewable energy in such country. federal, state and local governmental bodies in many of the target markets for our solar business, including germany, italy, spain, the united states, france, japan and south korea, have provided subsidies and economic incentives in the form of feed-in tariffs, rebates, tax credits and other incentives to end users, distributors, system integrators and manufacturers of solar energy products to promote the use of solar energy and to reduce dependency on other forms of energy. these government economic incentives could be reduced or eliminated earlier than anticipated. for example, in june2008, the german parliament adopted new legislation that will decrease the feed-in tariff for solar energy between 8% and 10% in 2010 and 9% annually thereafter. also, in september 2008, the spanish parliament adopted new legislation that will decrease the feed-in tariff for solar energy by approximately 27% and capped its subsidized pv installations at 500 mw for 2009. moreover, electric utility companies, or generators of electricity from fossil fuels or other renewable energy sources, could also lobby for changes in the relevant legislation in their markets to protect their revenue streams. reduced growth in or the reduction, elimination or expiration of government subsidies and economic incentives for solar energy, especially those in our target markets, could cause our solar net sales to decline and harm our business.our solar business is dependent on a limited number of customers, which may cause significant fluctuations or result in declines in our solar net sales. the solar module industry is relatively concentrated. as a result, we sell substantially all of our encapsulants to a limited number of solar module manufacturers. we expect that our results of operations will, for the foreseeable future, continue to depend on the sale of encapsulants to a relatively small number of customers. sales to first solar accounted for 31.0% and 19.1% of our solar net sales in the six months ended june30, 2009 and the year ended december31, 2008, respectively. in addition, the top five customers in our solar segment accounted for approximately 63.6% and 47.0% of our solar net sales in the six months ended june30, 2009 and the year ended december31, 2008, respectively. furthermore, participants in the solar industry, including our customers, are experiencing pressure to reduce their costs. because we are part of the overall supply chain to our customers, any cost pressures experienced by them may affect our business and results of operations. our customers may not continue to generate significant solar net sales for us. conversely, we may be unable to meet the production demands of our customers or maintain these customer relationships. also, new entrants into the solar module manufacturing industry, primarily from china, could negatively impact the demand for, and pricing of, our customers' products, which could reduce the demand for our encapsulants. we believe our european customers have lost market share to low-cost module manufacturers, primarily from china, that continue to penetrate the european solar market and whom we do not sell encapsulants to. we have lost market share in the european market due to emerging low-cost solar module manufacturers, primarily from china, and if we are not able to supply encapsulants to these new entrants in the future, we could lose further market share and also face competition from new encapsulant manufacturers. in addition, a significant portion of our outstanding accounts receivable is derived from sales to a limited number of customers. the accounts receivable from our top five solar customers with the largest receivable balances represented 44.8% and 34.6% of our accounts receivable balance as of june30, 2009 and december31, 2008, respectively. moreover, many solar companies are facing and may continue to face significant liquidity and capital expenditure requirements, and as a result, our customers may have trouble making payments owed to us, which could affect our business, financial condition and results of operations. any one of the following events may cause material fluctuations or declines in our solar net sales and have a material adverse effect on our business, financial condition and results of operations: reduction, postponement or cancellation of orders from one or more of our significant customers; reduction in the price one or more significant solar customers are willing to pay for our encapsulants; selection by one or more solar customers of products competitive with our encapsulants; loss of one or more significant solar customers and failure to obtain additional or replacement customers; and failure of any of our significant solar customers to make timely payment for products.our solar business's growth is dependent upon the growth of our key solar customers and our ability to keep pace with our customers' growth. in addition to relying on a small number of customers, we believe we were the primary supplier to each of our top 10 solar customers in the first six months of 2009. the future growth and success in our solar business depends on the ability of such customers to grow their businesses and our ability to meet any such growth, principally through the addition of manufacturing capacity. if our solar customers do not increase production of solar modules, there will be no corresponding increase in encapsulant orders. alternatively, in the event such customers grow their businesses, we may not be able to meet their increased demands, which would require such customers to find alternative sources for encapsulants. in addition, it is possible that customers for which we are the exclusive supplier of encapsulants will seek to qualify and establish a secondary supplier of encapsulants, which would reduce our share with such customers and could increase that customer's pricing leverage. if our solar customers do not grow their businesses or they find alternative sources for encapsulants to meet their demands, it could limit our ability to grow our business and increase our solar net sales.technological changes in the solar energy industry or our failure to develop and introduce or integrate new technologies could render our encapsulants uncompetitive or obsolete, which would adversely affect our business. the solar energy market is rapidly evolving and competitive and is characterized by continually changing technology requiring continuous improvements in solar modules to increase efficiency and power output and improve aesthetics. this requires us and our customers to continuously invest significant financial resources to develop new solar module technology and enhance existing solar modules to keep pace with evolving industry standards and changing customer requirements and to compete effectively in the future. our failure to further refine our encapsulant technology and develop and introduce new or enhanced encapsulants or other products, or our competitors' development of products and technologies that perform better or are more cost effective than our products, could cause our encapsulants to become uncompetitive or obsolete, which would adversely affect our business, financial condition and results of operations. product development activities are inherently uncertain, and we could encounter difficulties in commercializing new technologies. as a result, our product development expenditures in our solar business may not produce corresponding benefits. moreover, we produce a component utilized in the manufacturing of solar modules. new solar technologies may emerge or existing technologies may gain market share that do not require encapsulants as we produce them, or at all. such changes could result in decreased demand for our encapsulants or render them obsolete, which would adversely affect our business, financial condition and results of operations.we rely upon trade secrets and contractual restrictions, and not patents, to protect our proprietary rights. failure to protect our intellectual property rights may undermine our competitive position and protecting our rights or defending against third-party allegations of infringement may be costly. protection of proprietary processes, methods, documentation and other technology is critical to our business. failure to protect, monitor and control the use of our existing intellectual property rights could cause us to lose our competitive advantage and incur significant expenses. we rely on trade secrets, trademarks, copyrights and contractual restrictions to protect our intellectual property rights and currently do not hold any patents related to our solar business. however, the measures we take to protect our trade secrets and other intellectual property rights may be insufficient. while we enter into confidentiality agreements with our solar employees and third parties to protect our intellectual property rights, such confidentiality provisions related to our trade secrets could be breached and may not provide meaningful protection for our trade secrets. also, others may independently develop technologies or products that are similar or identical to ours. in such case, our trade secrets would not prevent third parties from competing with us. third parties or employees may infringe or misappropriate our proprietary technologies or other intellectual property rights, which could harm our business and operating results. policing unauthorized use of intellectual property rights can be difficult and expensive, and adequate remedies may not be available. we are currently in litigation with a former employee, jamesp. galica, in our solar business and his current employer, jps elastomerics corp., for the misappropriation and theft of our trade secrets. in august 2008, the jury determined that the technology for our polymeric sheeting product line is a trade secret. the jury also determined that our former employee and his current employer had not misappropriated our trade secrets. we have not decided if we will appeal the jury's determination. the jury also found that our former employee had breached his confidentiality agreement with us. subsequently, the judge determined that jps and galica had violated the massachusetts unfair and deceptive trade practices act, finding that the technology for our polymeric sheeting product is a trade secret and that jps and galica had misappropriated our trade secrets. the judge awarded us compensatory and punitive damages, attorneys' fees and costs and issued a temporary injunction preventing jps from manufacturing, marketing or selling the competing products, which are substantially similar to some of our encapsulants. the final amount of damages to be awarded to us, as well as the scope of a permanent injunction, is still pending before the court and will be determined by the presiding judge. jps has filed a motion for reconsideration of the court's decision that jps and galica had violated the massachusetts unfair and deceptive trade practices act. final judgment will not be entered until these pending matters are resolved. the court has ordered each party to brief the remaining issues. upon entry of final judgment, jps will have the right to appeal the judge's ruling, and we will have the right to appeal the jury's verdict. if jps or galica is successful on the appeals from both the jury's verdict and the judge's rulings, the result may be a new trial or a final determination that jps may compete with us by continuing to sell a product that is substantially similar to some of our encapsulants. jps may also be allowed to compete with us on some encapsulant products based on the court's ruling on the scope and duration of the permanent injunction. even if we are ultimately successful, this lawsuit and any future lawsuits to protect our intellectual property rights or defend against third-party infringement claims may be costly and may divert management attention and other resources away from our business. for further information regarding the litigation with our former employee, see "businesslegal proceedingsgalica/jps."we face competition in our solar business from other companies producing encapsulants for solar modules. the market for encapsulants is highly competitive and continually evolving. we compete with a number of encapsulant manufacturers, some of which are large, global companies with substantial financial, manufacturing and logistics resources and strong customer relationships. if we fail to attract and retain customers for our current and future products, we will be unable to increase our revenues and market share. our primary encapsulant competitors include bridgestone corporation, etimex primary packaging gmbh and mitsui chemicals, inc. we also expect to compete with new entrants to the encapsulant market, including those that may offer more advanced technological solutions or that have greater financial resources than we do. further, as the china solar market matures, we expect other encapsulant providers from china and the greater asian markets will compete with us. our competitors may develop and produce or may be currently producing encapsulants that offer advantages over our products. a widespread adoption of any of these technologies could result in a rapid decline in our position in the encapsulant market and our revenues and adversely affect our margins.our failure to build and operate new manufacturing facilities and increase production capacity at our existing facilities to meet our customers' requirements could harm our business and damage our customer relationships in the event demand for encapsulants increases. conversely, expanding our production in times of overcapacity could have an adverse impact on our results of operations. prior to the fourth quarter of 2008, our manufacturing facilities generally operated at full production capacity, which constrained our ability to meet increased demand from our customers. the future success of our solar business depends, in part, on our ability to increase production capacity to satisfy any increased demand from our customers. we may be unable to expand our solar business, satisfy customer requirements, maintain our competitive position and improve profitability if we are unable to build and operate new manufacturing facilities and increase production capacity at our existing facilities to meet any increased demand for our solar products. for example, if there are delays in our new malaysian facility achieving target yields and output, we will not meet our target for adding capacity, which would limit our ability to increase encapsulant sales and result in lower than expected solar net sales and higher than expected costs and expenses. moreover, we may experience delays in receiving equipment and be unable to meet any increases in customer demand. failure to satisfy customer demand may result in a loss of market share to competitors and may damage our relationships with key customers. in addition, due to the lead time required to produce the equipment used in our encapsulant manufacturing process, it can take up to a year to obtain new machines after they are ordered. accordingly, we are required to order production equipment well in advance of expanding our facilities or opening new facilities and in advance of accepting additional customer orders. if such facilities are not expanded or completed on a timely basis or if anticipated customer orders do not materialize, we may not be able to generate sufficient solar net sales to offset the costs of new production equipment, which could have an adverse impact on our results of operations. furthermore, we rely on longer-term forecasts from our solar customers to plan our capital expenditures. if these forecasts prove to be inaccurate, either we may have spent too much on capacity growth, which could require us to consolidate facilities, in which case our financial results would be adversely affected, or we may have spent too little on capital expenditures, in which case we may be unable to satisfy customer demand, which could adversely affect our business. furthermore, our ability to establish and operate new manufacturing facilities and expand production capacity is subject to significant risks and uncertainties, including: restrictions in the agreements governing our indebtedness that restrict the amount of capital that can be spent on manufacturing facilities; inability to raise additional funds or generate sufficient cash flow from operations to purchase raw material inventory and equipment or to build additional manufacturing facilities; delays and cost overruns as a result of a number of factors, many of which are beyond our control, such as increases in raw material prices and long lead times or delays with equipment vendors; delays or denials of required approvals by relevant government authorities; diversion of significant management attention and other resources; inability to hire qualified personnel; and failure to execute our expansion plan effectively. if we are unable to establish or successfully operate additional manufacturing facilities or to increase production capacity at our existing facilities, as a result of the risks described above or otherwise, we may not be able to expand our business as planned and our solar net sales may be lower than expected. alternatively, if we build additional manufacturing facilities or increase production capacity at our existing facilities, we may not be able to generate sufficient customer demand for our encapsulants to support the increased production levels, which would adversely affect our business and operating margins.our solar business is exposed to risks related to running our facilities at full production capacity from time to time that could result in decreased solar net sales and affect our ability to grow our business in future periods. prior to the fourth quarter of 2008, our manufacturing facilities generally operated at full production capacity. if any of our current or future production lines or equipment were to experience any problems or downtime, such as in 2005 when one of our plants was without electricity for five days following a hurricane, we may not be able to shift production to new lines and may not be able to meet our production targets, which would result in decreased solar net sales and adversely affect our customer relationships. as a result, our per-unit manufacturing costs would increase, we would be unable to increase sales as planned and our earnings would likely be negatively impacted. in addition, when our encapsulant production lines are running at full capacity, they are generally used solely to meet current customers' orders. as such, there is very limited production line availability to test new technologies or further refine existing technologies that are important for keeping pace with evolving industry standards and changing customer requirements and competing effectively in the future. limitations in our ability to test new products or enhancements to our existing products could cause our encapsulants to become uncompetitive or obsolete, which would adversely affect our business.we may be subject to claims that we have infringed, misappropriated or otherwise violated the patent or other intellectual property rights of a third party. the outcome of any such claims is uncertain and any unfavorable result could adversely affect our business, financial condition and results of operations. we may be subject to claims by third parties that we have infringed, misappropriated or otherwise violated their intellectual property rights. these claims may be costly to defend, and we ultimately may not be successful. an adverse determination in any such litigation could subject us to significant liability to third parties (potentially including treble damages), require us to seek licenses from third parties (which may not be available on reasonable terms, or at all), make substantial one-time or ongoing royalty payments, redesign our products or subject us to temporary or permanent injunctions prohibiting the manufacture and sale of our products, the use of our technologies or the conduct of our business. protracted litigation could also result in our customers or potential customers deferring or limiting their purchase or use of our products until resolution of such litigation. in addition, we may have no insurance coverage in connection with such litigation and may have to bear all costs arising from any such litigation to the extent we are unable to recover them from other parties. any of these outcomes could have a material adverse effect on our business, financial condition and results of operations.we generally operate on a purchase order basis with our solar customers, and their ability to cancel, reduce, or postpone orders could reduce our solar net sales and increase our costs. sales to our solar customers are typically made through non-exclusive, short-term purchase order arrangements that specify prices and delivery parameters. the timing of placing these orders and the amounts of these orders are at our customers' discretion. customers may cancel, reduce or postpone purchase orders with us prior to production on relatively short notice. if customers cancel, reduce or postpone existing orders or fail to make anticipated orders, it could result in the delay or loss of anticipated sales, which could lead to excess inventory and unabsorbed overhead costs. because our encapsulants have a limited shelf life from the time they are produced until they are incorporated into a solar module, we may be required to sell any excess inventory at a reduced price, or we may not be able to sell it at all and incur an inventory write-off, which could reduce our solar net sales and increase our costs. in the first six months of 2009, we experienced postponements and cancellations in orders and, as a result, incurred approximately $1.0million of inventory write-offs.we may be unable to manage the expansion of our solar operations effectively. we expect to expand our existing facilities and add new facilities to meet future demand for encapsulants. we recently completed expansions in our facilities in connecticut and spain. the production line qualification on our malaysian facility has been completed, and we began shipping production quantities of encapsulants from that facility in the third quarter of2009. to manage the potential growth of our operations, we will be required to improve operational and financial systems, procedures and controls, increase manufacturing capacity and output and expand, train and manage our growing employee base. furthermore, management will be required to maintain and expand our relationships with our customers, suppliers and other third parties. our solar business's current and planned operations, personnel, systems, internal procedures and controls may not be adequate to support our future growth. if we are unable to manage the growth of our solar business effectively, we may not be able to take advantage of market opportunities, execute our business strategies or respond to competitive pressures.our dependence on a limited number of third-party suppliers for raw materials for our encapsulants and other significant materials used in our process could prevent us from timely delivering encapsulants to our customers in the required quantities, which could result in order cancellations and decreased revenues. we purchase resin and paper liner, the two main components used in our manufacturing process, from a limited number of third-party suppliers. if we fail to develop or maintain our relationships with these suppliers or our other suppliers, or if the suppliers' facilities are affected by events beyond our control, we may be unable to manufacture our encapsulants or our encapsulants may be available only for customers in lesser quantities, at a higher cost or after a long delay. we may be unable to pass along any price increases relating to materials costs to our customers, in which case our margins could be reduced. in addition, we do not maintain long-term supply contracts with our suppliers. our inventory of raw materials for our encapsulants, including back-up supplies of resin, may not be sufficient in the event of a supply disruption. in 2005, we encountered a supply disruption when one of our resin suppliers had its facilities damaged by a hurricane, and another supplier had a reactor fire at the same time. this forced us to use our back-up supplies of resin. the failure of a supplier to supply materials and components, or a supplier's failure to supply materials that meet our quality, quantity and cost requirements in a timely manner, could impair our ability to manufacture our products to specifications, particularly if we are unable to obtain these materials and components from alternative sources on a timely basis or on commercially reasonable terms. if we are forced to change suppliers, our customers may require us to undertake testing to ensure that our encapsulants meet the customer's specifications.our solar gross margins and profitability may be adversely affected by rising commodity costs. we are dependent on certain raw and other materials, particularly resin and paper, for the manufacture of our encapsulants. in addition, the cost of equipment used to manufacture our encapsulants is affected by steel prices. the prices for resin, paper and steel have been volatile over the past few years and could increase. if the prices for the commodities and equipment we use in our solar business increase, our gross margins and results of operations may be adversely affected.as a supplier to solar module manufacturers, disruptions in any other component of the supply chain to solar module manufacturers may adversely affect our customers and consequently limit the growth of our business and revenue. we supply a component to solar module manufacturers. as such, if there are disruptions in any other area of the supply chain for solar module manufacturers, it could affect the overall demand for our encapsulants. for example, the increased demand for polysilicon due to the rapid growth of the solar energy and computer industries and the significant lead time required for building additional capacity for polysilicon production led to an industry-wide shortage of polysilicon from 2005 through 2008, which is an essential raw material in the production of most of the solar modules produced by many of our customers. this and other disruptions to the supply chain may force our customers to reduce production, which in turn would decrease customer demand for our encapsulants and could adversely affect our solar net sales. in addition, reduced orders for our encapsulants could result in underutilization of our production facilities and cause an increase of our marginal production cost. in 2009, we experienced postponements and cancellations in orders and, as a result, incurred approximately $1.0million of inventory write-offs.the sales cycle for our encapsulants can be lengthy, which could result in uncertainty and delays in generating solar net sales. the integration and testing of our encapsulants with prospective customers' solar modules or enhancements to existing customers' solar modules requires a substantial amount of time and resources. a solar customer may need up to one year to test, evaluate and adopt our encapsulants and qualify a new solar module, before ordering our encapsulants. our solar customers then need additional time to begin volume production of solar modules that incorporate our encapsulants. as a result, the complete sales cycle for our solar business can be lengthy. we may experience a significant delay between the time we increase our expenditures for product development, sales and marketin | 0.035594 | 29.75 | 1079.60 | 645.860 | 123000000 | 264.945 | False | 2009 |
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| age | amountOnProspectus | blueSky | bookValue | city | closeDay1 | commonEquity | commonEquity.1 | dj2weeksBefore | egc | exchange | highTech | html | industryFF12 | industryFF48 | industryFF5 | investmentReceived | ipoSize | issuer | leverage | managementFee | manager | nasdaq2weeksBefore | netIncome | nExecutives | nPatents | nUnderwriters | nVCs | offerPrice | patRatio | pe | priorFinancing | prominence | reputationAvg | reputationLeadAvg | reputationLeadMax | reputationSum | rf | roa | sharesOfferedPerc | sp2weeksBefore | totalAssets | totalProceeds | totalRevenue | vc | year | |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 3320 | 4.0 | 160.0 | 2000.0 | NaN | HACKENSACK | 16.0000 | NaN | 99.95 | 11119.86 | False | NASDQ | True | False | Telephone and Television Transmission | Communication | Business Equipment, Telephone and Television Transmission | 77698.0 | 160000000.0 | GoAmerica Inc | NaN | 2250000.0 | Bear Stearns & Co Inc | 4940.61 | NaN | 12.0 | 0 | 25 | 7.0 | 16.00 | 0.461538 | False | 77698.0 | 0 | 5.920960 | 8.00100 | 8.001 | 148.024 | RISK FACTORS Investing in our common stock involves a high degree of risk. You should carefully consider the following risks together with the other information contained in this prospectus before deciding to buy our common stock. If any of the following risks or uncertainties actually occur, our business, financial condition and operating results could be significantly and adversely affected. If that happens, the price of our common stock could decline, and you could lose all or part of your investment. Risks Particular To GoAmerica We have historically incurred losses and these losses will increase in the foreseeable futureWe have never earned a profit. We had net losses of $1.0 million, $2.6 million and $11.5 million for the years ended December 31, 1997, 1998 and 1999, respectively. Since our inception, we have invested significant capital to build our wireless network operations and customer support centers as well as our customized billing system. Recently, we have invested additional capital in the development of our software application Go.Web. We plan to acquire and implement new operational and financial systems, continue to invest in our network operations and customer support centers, and expand our sales and marketing efforts. We also provide and expect to continue to provide mobile devices made by third parties to our customers at prices below our costs for such devices. In addition, our costs of subscriber revenue, consisting principally of our purchase of wireless airtime from network carriers, have historically exceeded our subscriber revenue and we expect such negative margins to continue until at least March 2000. Further, we have experienced and expect to continue to experience negative overall gross margins, which consist of margins on our subscriber revenues, equipment sales and other revenue. As a result, we have incurred operating losses since our inception and expect to continue to incur increasing operating losses for at least the next several quarters. Therefore, we will need to generate significant revenue to become profitable and sustain profitability on a quarterly or annual basisWe may not achieve or sustain our revenue or profit goals, and our ability to do so depends on the factors specified elsewhere in "Risk Factors" as well as on a number of factors outside of our control, including the extent to which: . our competitors announce and develop, or lower the prices of, competing services; . wireless network carriers, data providers and manufacturers of mobile devices dedicate resources to selling our services; and . prices for our services decrease as a result of reduced demand or competitive pressuresAs a result, we may not be able to increase revenue or achieve profitability on a quarterly or annual basis. We have only a limited operating history, which makes it difficult to evaluate an investment in our common stock We have only a limited operating history on which you can evaluate our business, financial condition and operating results. We face a number of risks encountered by early stage technology companies that participate in new technology markets, including our ability to: . manage our dependence on wireless data services which have only limited market acceptance to date; . expand our marketing, sales, engineering and support organizations, as well as our distribution channels; . negotiate and maintain favorable usage rates with telecommunications carriers; . retain and expand our subscriber base at profitable rates; . recoup our expenses associated with the wireless devices we resell to subscribers; 6 . manage expanding operations, including our ability to expand our systems if our subscriber base grows substantially; . attract and retain management and technical personnel; and . anticipate and respond to market competition and changes in technologies such as wireless data protocols and wireless devicesWe may not be successful in addressing or mitigating these risks and uncertainties, and if we are not successful our business could be significantly and adversely affected. To generate increased revenue we will have to increase substantially the number of our subscribers, which may be difficult to accomplish We will have to increase substantially the number of our subscribers in order to achieve our business plan. In addition to increasing our subscriber base, we will have to limit our churn, or the number of subscribers who deactivate our service. Adding new subscribers will depend to a large extent on the success of our direct and indirect marketing campaigns, and there can be no assurance that they will be successful. Limiting our churn rate will require that we provide our subscribers with a favorable experience in using our wireless service. Our subscribers' experience may be unsatisfactory to the extent that our service malfunctions or our customer care efforts, including our Web site and 800 number customer service efforts, do not meet or exceed subscriber expectations. In addition, factors beyond our control, such as technological limitations of certain of the current generation of wireless devices, which may cause our subscribers' experience with our service to not meet their expectations, could increase our churn rate and adversely affect our revenues. Because a significant minority of our subscribers have low or no usage rates for our services, our churn rates could increase in the future. We need to improve our systems to monitor our wireless airtime costs more effectivelyWe seek to reduce our wireless airtime costs by periodically matching our subscribers airtime usage needs to the most appropriate, lowest cost wireless carrier plans. It is possible for a small number of subscribers, if we do not assign them to the proper airtime pricing plan, to significantly increase our costs. The current systems that we use to monitor the airtime charges that we incur from our wireless carriers do not permit us to timely and effectively respond to changes in volume and geographic location of subscriber usage, which directly impact our costs of subscriber revenue. We currently use a manual system to track such costs and monitor wireless plan usage. We cannot assure you that we will be able to acquire or develop automated control systems or, if implemented, that our systems will be able to monitor all subscriber usage or improve our gross margins. We have experienced and may continue to experience negative gross margins on our subscriber revenueWe intend to pass through to our subscribers all the airtime charges that we incur from our wireless carriers; however, we have not always been and will not always be able to pass through such charges because the pricing plans offered to us by our wireless carriers and to which we assign our subscribers may not allow us to always cover our subscriber costs. For example, many of our subscribers have contracted for our Go.Unlimited Plan, which provides for unlimited nationwide wireless Internet service for a fixed monthly fee. If we assign those subscribers to a carrier plan that charges us an increasing fee as subscriber usage increases, then as subscriber usage and our related airtime costs increase, our margins on subscriber revenues would decrease and may become negative. Our airtime costs also increase substantially when subscribers use our services outside of their pre-determined geographic area, which results in roaming charges to us by the carriers that we do not pass on to our subscribers. We do not have and may not be able to develop the automated systems necessary to monitor our subscribers' usage and roaming patterns and quickly switch our subscribers to a more appropriate, lower cost airtime plan. In addition, while we continually seek to negotiate better pricing of wireless airtime plans with our carriers, we cannot assure you that we will be successful in that regard. 7 We subsidize the mobile devices that we resell which results in negative gross margins on our equipment revenueIn order to facilitate the sale of our wireless Internet services, the sales prices of the mobile devices manufactured by third parties that we sell to our subscribers are generally below our costs for such devices. Additionally, we have also provided many of our resellers and marketing partners with complimentary mobile devices and GoAmerica service during a trial period in order to facilitate additional sales of our services. As a result, we have experienced, and expect to continue to experience, negative gross margins on the mobile devices that we resell. We have limited resources and we may be unable to support effectively our anticipated growth in operationsWe have begun aggressively expanding our operations in anticipation of an increase in the number of our subscribers. The number of our employees increased from 23 on December 31, 1998 to 49 on December 31, 1999. We intend to use a portion of the net proceeds of this offering to hire a significant number of additional employees. We also intend to use a portion of the net proceeds from this offering to acquire a state-of-the-art accounting and business process software package to replace our current manual systems which must be updated. Additionally, we must continue to develop and expand our systems and operations as the number of subscribers and the amount of information they wish to receive, as well as the number of services we offer, increases. This development and expansion has placed, and we expect it to continue to place, significant strain on our managerial, operational and financial resources. We may be unable to develop and expand our systems and operations for one or more of the following reasons: . we may not be able to locate or hire at reasonable compensation rates qualified engineers and other employees necessary to expand our capacity on a timely basis; . we may not be able to obtain the hardware necessary to expand the subscriber capacity of our systems on a timely basis; . we may not be able to expand our customer service, billing and other related support systems; and . we may not be able to obtain sufficient additional capacity from wireless carriers on a timely basisIf we cannot manage our growth effectively, our business and operating results will suffer. Additionally, any failure on our part to develop and maintain our wireless data services if we experience rapid growth could significantly adversely affect our reputation and brand name which could reduce demand for our services and adversely affect our business, financial condition and operating results. Our business prospects depend in part on our ability to maintain and improve our services as well as to develop new servicesWe believe that our business prospects depend in part on our ability to maintain and improve our current services and to develop new services on a timely basis. Our services will have to achieve market acceptance, maintain technological competitiveness and meet an expanding range of customer requirements. As a result of the complexities inherent in our service offerings, major new wireless data services and service enhancements require long development and testing periods. We may experience difficulties that could delay or prevent the successful development, introduction or marketing of new services and service enhancements. Additionally, our new services and service enhancements may not achieve market acceptance. If we do not respond effectively and on a timely basis to rapid technological change, our business could sufferThe wireless and data communications industries are characterized by rapidly changing technologies, industry standards, customer needs and competition, as well as by frequent new product and service 8 introductions. Our services are integrated with wireless handheld devices and the computer systems of our corporate customers. Our services must also be compatible with the data networks of wireless carriers. We must respond to technological changes affecting both our customers and suppliers. We may not be successful in developing and marketing, on a timely and cost-effective basis, new services that respond to technological changes, evolving industry standards or changing customer requirements. Our success will depend, in part, on our ability to accomplish all the following in a timely and cost-effective manner: . effectively use and integrate new technologies; . continue to develop our technical expertise; . enhance our wireless data, engineering and system design services; . develop applications for new wireless networks and services; . develop services that meet changing customer needs; . advertise and market our services; and . influence and respond to emerging industry standards and other changes. We depend upon wireless carriers' networks. If we do not have continued access to sufficient capacity on reliable networks, our business will sufferOur success partly depends on our ability to buy sufficient capacity on the networks of wireless carriers such as AT&T Wireless Services, American Mobile, Bell Atlantic Mobile and BellSouth Mobile Data and on the reliability and security of their systems. We depend on these companies to provide uninterrupted and "bug free" service and would be adversely affected if they failed to provide the required capacity or needed level of service. In addition, although we have some forward price protection in our existing agreements with certain carriers, we could be adversely affected if wireless carriers were to increase the prices of their services. Our existing agreements with the wireless carriers generally have one-to-three year terms. Some of these wireless carriers are, or could become, our competitors. We depend on third parties for sales of our services which could result in variable and unpredictable revenuesWe rely substantially on the efforts of others to sell many of our wireless data communications services. While we monitor the activities of our resellers, we cannot control how those who sell and market our service perform and we cannot be certain that their performance will be satisfactory. If the number of customers we obtain through these efforts is substantially lower than we expect for any reason, this would have an adverse effect on our business, operating results and financial condition. Our goal of building the GoAmerica brand is likely to be difficult and expensive and our inability to do so could adversely affect our businessWe believe that a quality brand identity will be essential if we are to increase our number of subscribers and our revenues. We intend to use a significant portion of the proceeds of the offering to increase substantially our marketing budget as part of our efforts to build the GoAmerica brand. Our sales and marketing expenses were approximately $909,000 and $3.3 million for the years ended December 31, 1998 and 1999, respectively. In 2000, we expect our sales and marketing expenses to substantially exceed our 2000 revenues. If our marketing efforts cost more than anticipated, if we cannot increase our brand awareness or if the GoAmerica brand is not well received by our existing and potential subscribers, our losses will increase and our business will be adversely affected. 9 We depend on our key management and on recruiting and retaining key personnel. The loss of our key employees could adversely affect our businessWe are particularly dependent on Aaron Dobrinsky and Joseph Korb, our chairman, chief executive officer and president, and our executive vice president, respectively, for most of our strategic, managerial and marketing initiatives. The unexpected loss of such officers would likely have an adverse effect on our business. In addition, because of the technical nature of our services and the dynamic market in which we compete, our performance depends on attracting and retaining other key employees. Competition for qualified personnel in the wireless data, communications and software industries is intense and finding and retaining such qualified personnel with experience in such industries is even more difficult. We believe there are only a limited number of individuals with the requisite skills to serve in many of our key positions, and it is becoming increasingly difficult to hire and retain these persons. Competitors and others may attempt to recruit our employees. A major part of our compensation to our key employees is in the form of stock option grants. A prolonged depression in our stock price could make it difficult for us to retain our employees and recruit additional qualified personnel. We currently maintain and are the beneficiary of key person life insurance policies on the lives of Aaron Dobrinsky and Joseph Korb. We do not maintain insurance policies for any of our other employees. Wireless data systems failures could harm our business by injuring our reputation or lead to claims of liability for delayed, improper or unsecured transmission of dataA significant barrier to the growth of ecommerce and wireless data services has been the need for secure and reliable transmission of confidential information. Our existing wireless data services are dependent on real-time, continuous feeds from various sources. The ability of our subscribers to access data in real-time requires timely and uninterrupted connections with our wireless network carriers. Any significant disruption from our backup landline feeds could result in delays in our subscribers' ability to receive such information. In addition, our systems could be disrupted by unauthorized access, computer viruses and other accidental or intentional actions. We may incur significant costs to protect against the threat of security breaches or to alleviate problems caused by such breaches. If a third party were able to misappropriate our subscribers' personal or proprietary information or credit card information, we could be subject to claims, litigation or other potential liabilities that could adversely impact our business. There can be no assurance that our systems will operate appropriately if we experience a hardware or software failure. A failure in our systems could cause delays in transmitting data, and as a result we may lose customers or face litigation that could adversely affect our business. An interruption in the supply of products and services that we obtain from third parties could cause a decline in sales of our servicesIn designing, developing and supporting our wireless data services, we rely on wireless carriers, mobile device manufacturers, content providers and software providers. These suppliers may experience difficulty in supplying us products or services sufficient to meet our needs or they may terminate or fail to renew contracts for supplying us these products or services on terms we find acceptable. Any significant interruption in the supply of any of these products or services could cause a decline in sales of our services, unless and until we are able to replace the functionality provided by these products and services. We also depend on third parties to deliver and support reliable products, enhance their current products, develop new products on a timely and cost- effective basis and respond to emerging industry standards and other technological changes. We may face increased competition which may negatively impact our prices for our services or cause us to lose business opportunitiesThe market for our services is expected to become increasingly competitive. The widespread adoption of industry standards in the wireless data communications market may make it easier for new market entrants and existing competitors to introduce services that compete against ours. We developed our solutions using standard industry development tools. Many of our agreements with wireless carriers, wireless handheld device manufacturers and data providers are non-exclusive. Our competitors may use the same products and services 10 in competition with us. With time and capital, it would be possible for competitors to replicate our services and offer similar services at a lower price. We expect that we will compete primarily on the basis of the functionality, breadth, quality and price of our services. Our current and potential competitors include: . Emerging wireless Internet services providers, including OmniSky, Wireless Knowledge, a joint venture of Microsoft and Qualcomm, Incorporated, and Infospace.com which recently acquired Saraide.com and those, such as Aether Systems, Inc., focusing on specific industries such as on-line financial trading; . Wireless device manufacturers, such as 3Com, Motorola and Research in Motion; . Wireless network carriers, such as AT&T Wireless Services, Bell Atlantic Mobile, BellSouth Wireless Data, Sprint PCS and Nextel Communications, Inc.; and . Wireline internet service providers and portals, such as America Online and Yahoo!Many of our existing and potential competitors have substantially greater financial, technical, marketing and distribution resources than we do. Additionally, many of these companies have greater name recognition and more established relationships with our target customers. Furthermore, these competitors may be able to adopt more aggressive pricing policies and offer customers more attractive terms than we can. In addition, we have established strategic relationships with many of our potential competitors. In the event such companies decide to compete directly with us, such relationships would likely be terminated, which might have an adverse effect on our business and reduce our market share or force us to lower prices to unprofitable levels. We may not have adequately protected our intellectual property rightsOur success substantially depends on our ability to sell services for which we may not have intellectual property rights. We currently do not have patents on any of our intellectual property. We have filed for a patent on certain aspects of our Go.Web technology. We cannot assure you we will be successful in protecting our intellectual property through patent law. In addition, although we have applied for U.S. federal trademark protection, we do not have any U.S. federal trademark registrations for the marks "GoAmerica", "Go.Web", "Law on the Go" or certain of our other marks and we may not be able to obtain such registrations due to conflicting marks or otherwise. We rely primarily on trade secret laws, patent law, copyright law, unfair competition law and confidentiality agreements to protect our intellectual property. To the extent that our technology is not adequately protected by intellectual property law, other companies could develop and market similar products or services which could adversely affect our business. We may be sued by third parties for infringement of their proprietary rights and we may incur defense costs and possibly royalty obligations or lose the right to use technology important to our businessThe telecommunications and software industries are characterized by the existence of a large number of patents and frequent litigation based on allegations of patent infringement or other violations of intellectual property rights. As the number of participants in our market increases, the possibility of an intellectual property claim against us could increase. Any intellectual property claims, with or without merit, could be time consuming and expensive to litigate or settle and could divert management attention from administering our business. A third party asserting infringement claims against us or our customers with respect to our current or future products may adversely affect us by, for example, causing us to enter into costly royalty arrangements or forcing us to incur settlement or litigation costs. Please refer to "Business-- Intellectual Property Rights" for information relating to claims we have received. We may be subject to liability for transmitting information, and our insurance coverage may be inadequate to protect us from this liabilityWe may be subject to claims relating to information transmitted over systems we develop or operate. These claims could take the form of lawsuits for defamation, negligence, copyright or trademark infringement or other actions based on the nature and content of the materials. Although we carry general liability insurance, 11 our insurance may not cover potential claims of this type or may not be adequate to cover all costs incurred in defense of potential claims or to indemnify us for all liability that may be imposed. We may acquire or make investments in companies or technologies that could cause loss of value to our stockholders and disruption of our businessWe intend to explore opportunities to acquire companies or technologies in the future. Entering into an acquisition entails many risks, any of which could adversely affect our business, including: . failure to integrate the acquired assets and/or companies with our current business; . the price we pay may exceed the value we eventually realize; . loss of share value to our existing stockholders as a result of issuing equity securities as part or all of the purchase price; . potential loss of key employees from either our current business or the acquired business; . entering into markets in which we have little or no prior experience; . diversion of management's attention from other business concerns; . assumption of unanticipated liabilities related to the acquired assets; and . the business or technologies we acquire or in which we invest may have limited operating histories and may be subject to many of the same risks we are. Our quarterly operating results are subject to significant fluctuations and, as a result, period-to-period comparisons of our results of operations are not necessarily meaningfulOur quarterly operating results may fluctuate significantly in the future as a result of a variety of factors. These factors include: . the demand for and market acceptance of our services; . downward price adjustments by our competitors on services they offer that are similar to ours; . changes in the mix of services sold by our competitors; . technical difficulties or network downtime affecting wireless communications generally; . the ability to meet any increased technological demands of our customers; and . economic conditions specific to our industryTherefore, our operating results for any particular quarter may differ materially from our expectations or those of security analysts and may not be indicative of future operating results. The failure to meet expectations may cause the price of our common stock to decline substantially. We may need additional funds which, if available, could result in an increase in our interest expense or additional dilution to stockholders. If additional funds are needed and are not available, our business could be negatively impactedWe currently anticipate that our available cash resources combined with the net proceeds from this offering will be sufficient to fund our operating needs for at least the next 24 months, including the expansion of our sales and marketing program. Thereafter, we may require additional financing. At this time, we do not have any bank credit facility or other working capital credit line under which we may borrow funds for working capital or other general corporate purposes. If our plans or assumptions change or are inaccurate, we may be required to seek additional capital sooner than anticipated. We may need to raise such capital through public or private debt or equity financing. 12 If funds are raised through the issuance of equity securities, the percentage ownership of our then-current stockholders will be reduced and the holders of new equity securities may have rights, preferences or privileges senior to those of the holders of our common stock. If additional funds are raised through a bank credit facility or the issuance of debt securities, the holder of such indebtedness would have rights senior to your rights and the terms of such indebtedness could impose restrictions on our operations. If we need to raise additional funds, we may not be able to do so on terms favorable to us, or at all. If we cannot raise adequate funds on acceptable terms, we may not be able to continue to fund our operations. Risks Particular To Our Industry The market for our services is new and highly uncertainThe market for wireless data services is still emerging and continued growth in demand for and acceptance of these services remains uncertain. Current barriers to market acceptance of these services include cost, reliability, functionality and ease of use. We cannot be certain that these barriers will be overcome. If the market for our services does not grow or grows slower than we currently anticipate, our business, financial condition and operating results could be adversely affected. New laws and regulations that impact our industry could adversely affect our businessWe are not currently subject to direct regulation by the Federal Communications Commission or any other governmental agency, other than regulations applicable to businesses in general. However, in the future, we may become subject to regulation by the FCC or another regulatory agency. In addition, the wireless carriers who supply us airtime are subject to regulation by the FCC and regulations that affect them could adversely affect our business. Our business could suffer depending on the extent to which our activities or those of our customers or suppliers are regulated. Risks Particular To The Offering Our stock price, like that of many technology companies, may be volatile and it is difficult to predict whether a market for our common stock will developWe expect that the market price of our common stock will fluctuate as a result of variations in our quarterly operating results. These fluctuations may be exaggerated if the trading volume of our common stock is low. In addition, due to the technology-intensive and emerging nature of our business, the market price of our common stock may rise and fall in response to a variety of factors, including: . announcements of technological or competitive developments; . acquisitions or strategic alliances by us or our competitors; . the gain or loss of a significant customer or order; . changes in estimates of our financial performance or changes in recommendations by securities analysts regarding us or our industry; or . general market or economic conditionsThis risk may be heightened because our industry is new and evolving, characterized by rapid technological change and susceptible to the introduction of new competing technologies or competitors In addition, equity securities of many technology companies have experienced significant price and volume fluctuations. These price and volume fluctuations often have been unrelated to the operating performance of the affected companies. Volatility in the market price of our common stock could result in securities class action litigation. This type of litigation, regardless of the outcome, could result in substantial costs and a diversion of management's attention and resources. 13 We cannot predict the extent to which investor interest in our common stock will lead to the development of a trading market or how liquid that market might become. As discussed earlier, our financial results are difficult to predict and could fluctuate significantly. Upon completion of this offering, you will experience dilutionOur tangible assets are readily identified assets like property, equipment, cash, securities and accounts receivable. The value of these assets on a pro forma as adjusted basis minus the value of our liabilities equals $3.75 per share, assuming the offering is completed. The offering price exceeds this amount by $12.25 per share. Therefore, you will be paying more for a share of stock than the value reflected in our accounts of tangible assets for that share. If we were forced to sell all our assets and distribute all the proceeds, you would not recover the amount you paid for shares unless we can sell the assets for more than the value we report for our tangible assets. We also have outstanding a large number of stock options and warrants to purchase common stock with exercise prices significantly below the price of shares in this offering. You will experience further dilution to the extent these options or warrants are exercised. We have anti-takeover defenses that could delay or prevent an acquisition and could adversely affect the price of our common stockProvisions of our certificate of incorporation and bylaws and provisions of Delaware law could d | NaN | 21.21 | 1527.34 | NaN | 160000000 | NaN | True | 2000 |
| 3321 | 30.0 | 159.6 | NaN | -92.334760 | KNOXVILLE | 12.8100 | -0.938 | NaN | 10471.58 | False | NYSE | False | True | Healthcare, Medical Equipment, and Drugs | Healthcare | Healthcare, Medical Equipment, and Drugs | 115000.0 | 159600000.0 | TeamHealth Inc | 0.649373 | 1928499.0 | Merrill Lynch & Co Inc\nGoldman Sachs & Co\nBarclays\nCiti | 2175.81 | 40.705 | 22.0 | 0 | 9 | 9.0 | 12.00 | 1.000000 | True | 157995.0 | 1 | 5.445111 | 9.00100 | 9.001 | 49.006 | risk factors an investment in our common stock involves risks. before investing in our common stock, you should carefully consider the following information about these risks, together with the other information contained in this prospectus, including managements discussion and analysis of financial condition and results of operations and the financial statements and the notes thereto included elsewhere in this prospectus. if any of the following risks actually occurs, our business, financial condition, operating results and prospects could be adversely affected, which in turn could adversely affect the value of our common stock. risks related to our business the current u.s. and global economic conditions could materially adversely affect our results of operations and business condition. our operations and performance depend significantly on economic conditions. if the current economic situation continues or deteriorates further, our business could be negatively impacted by reduced demand for our services or third-party disruptions resulting from higher levels of unemployment, government budget deficits and other adverse economic conditions. for example, loss of jobs and lack of health insurance as a result of the deterioration of the economy could depress demand for healthcare services generally. patient volume trends in our hospital eds could be adversely affected as individuals potentially defer or forego seeking care in such departments due to the loss or reduction of coverage previously available to such individuals under commercial insurance or government healthcare programs. in addition, the continuation of the current economic downturn may adversely impact our ability to collect for the services we provide as higher unemployment and reductions in commercial managed care enrollment may increase the number of uninsured and underinsured patients seeking healthcare at one of our staffed eds. we could also be negatively affected if the federal government or the states reduce funding of medicare, medicaid and other federal and state healthcare programs in response to increasing deficits in their budgets. additionally, private third-party payers may take cost-containment measures, including lowering reimbursement rates or increasing patient co-payments and deductibles, which could adversely affect our business. any of these risks, among other economic factors, could have a material adverse effect on our financial condition and operating results, and the risks could become more pronounced if the problems in the u.s. and global economies continue or become worse.the current u.s. and state health reform legislative initiatives could adversely affect our operations and business condition. the obama administration and congress are considering federal legislation to reform the u.s. healthcare system. the current proposed federal health reform legislation includes various bills with various congressional sponsors. a common issue addressed in the proposed federal health reform initiatives is increasing access to health benefits for the uninsured or underinsured populations. some of the current proposed federal health reform legislation includes medicare payment reforms and reductions that could reduce physician payments in the future. some states also have pending health reform legislative initiatives. at this time, we are unable determine the ultimate content or timing of any health reform legislation. we will not be able to determine the effect that any such legislation may have on our operations and business condition until such legislation is enacted, but such legislation may adversely affect our operations and business condition.laws and regulations that regulate payments for medical services made by government sponsored healthcare programs could cause our revenues to decrease. our affiliated physician groups derive a significant portion of their net revenues less provision for uncollectibles from payments made by government sponsored healthcare programs such as medicare and state reimbursed programs. there are public and private sector pressures to restrain healthcare costs and to restrict reimbursement rates for medical services. any change in reimbursement policies, practices, interpretations, 12 regulations or legislation that places limitations on reimbursement amounts or practices could significantly affect hospitals, and consequently affect our operations unless we are able to renegotiate satisfactory contractual arrangements with our hospital clients and contracted physicians. under medicare law, centers for medicare& medicaid services, or cms, is required to adjust the medicare physician fee schedule, or mpfs, payment rates annually based on an update formula which includes application of the sustainable growth rate, or sgr, that was adopted in the balanced budget act of 1997. this formula has yielded negative updates every year beginning in 2002, although cms was able to take administrative steps to avert a reduction in 2003 and congress has taken a series of legislative actions to prevent reductions from 2004 to 2009. on october30, 2008, cms released its final 2009 mpfs covering the period from january1, 2009 through december31, 2009. as a result of a 1.1% statutory increase in the 2009 mpfs and an increase in the physician work values associated with certain emergency services, we estimate that the 2009 mpfs effectively provides for an average 4.0% increase in the 2009 payment amount over the 2008 payment amount for services most commonly provided by emergency physicians. we estimate these payment updates will increase our revenues from medicare and other revenue sources whose rates are linked to the medicare fee schedule by an estimated $9.0 million in 2009. additionally, the 2009 mpfs extends the physician quality reporting initiative, or pqri, payment incentive for physicians who successfully report measures under pqri for 2009 and 2010. the payments under the pqri extension increased from 1.5% in 2008 to 2.0% in 2009. on october30, 2009, cms released its final 2010 mpfs payment changes covering the period from january 1, 2010 through december 30, 2010. the final rule includes a 21.2% rate reduction in the mpfs for 2010 as a result of the application of the sgr. the pqri payment incentives for physicians who successfully report measures under pqri will remain at 2.0% for 2010. although there are current legislative proposals that call for a delay in the application of the sgr until 2011 and increase physician payments by 0.5% for 2010, such proposals have not yet been enacted. absent regulatory changes or further congressional action with respect to the application of the sgr, medicare physician services would be subject to significant reductions beginning on january1, 2010. any future reductions in amounts paid by government programs for physician services or changes in methods or regulations governing payment amounts or practices could cause our revenues to decline and we may not be able to offset reduced operating margins through cost reductions, increased volume or otherwise.if governmental authorities determine that we violate medicare, medicaid or other government payer reimbursement laws or regulations, our revenues may decrease and we may have to restructure our method of billing and collecting medicare, medicaid or other government program payments, respectively. the medicare prescription drug improvement and modernization act of 2003 amended the medicare reassignment statute as of december8, 2003 to permit our independent contractor physicians to reassign their right to receive medicare payments to us. we have restructured our method of billing and collecting medicare payments in light of this statutory reassignment exception. in addition, state medicaid programs have similar reassignment rules. while we seek to comply substantially with applicable medicaid reassignment regulations, government authorities may find that we do not comply in all respects with these regulations. we utilize physician assistants and nurse practitioners, sometimes referred to collectively as mid-level practitioners, to provide care under the supervision of our physicians. state and federal laws require that such supervision be performed and documented using specific procedures. we believe our billing and documentation practices related to our use of mid-level practitioners substantially comply with applicable state and federal laws, but enforcement authorities may find that our practices violate such laws. when our services are covered by multiple third-party payers, such as a primary and a secondary payer, financial responsibility must be allocated among the multiple payers in a process known as coordination of 13 benefits, or cob. the rules governing cob are complex, particularly when one of the payers is medicare or another government program. although we believe we currently have procedures in place to assure that we comply with applicable cob rules and that we process refunds appropriately when we receive overpayments or overprovisions, payers or enforcement agencies may determine that we have violated these requirements. reimbursement to us is typically conditioned on our providing the correct procedure and diagnosis codes and properly documenting both the service itself and the medical necessity of the service. despite our measures to ensure coding accuracy, third-party payers may disallow, in whole or in part, requests for reimbursement based on determinations that certain amounts are not reimbursable, that the service was not medically necessary, that there was a lack of sufficient supporting documentation, or for other reasons. incorrect or incomplete documentation and billing information, or the incorrect selection of codes, could result in nonpayment, recoupment or allegations of billing fraud. management is not aware of any inquiry, investigation or notice from any governmental entity indicating that we are in violation of any of the medicare, medicaid or other government payer reimbursement laws and regulations. however, such laws and related regulations and regulatory guidance may be ambiguous or contradictory, and may be interpreted or applied by prosecutorial, regulatory or judicial authorities in ways that we cannot predict. accordingly, our arrangements and business practices may be the subject of government scrutiny or be found to violate applicable laws.we may incur substantial costs defending our interpretations of federal and state government regulations and if we lose, the government could force us to restructure our operations and subject us to fines, monetary penalties and exclusion from participation in government-sponsored programs such as medicare and medicaid. our operations, including our billing and other arrangements with healthcare providers, are subject to extensive federal and state government regulation. such regulations include numerous laws directed at payment for services, conduct of operations, preventing fraud and abuse, laws prohibiting general business corporations, such as us, from practicing medicine, controlling physicians medical decisions or engaging in some practices such as splitting fees with physicians, and laws regulating billing and collection of reimbursement from government programs, such as medicare and medicaid, and from private payers. those laws may have related rules and regulations that are subject to interpretation and may not provide definitive guidance as to their application to our operations, including our arrangements with hospitals, physicians and professional corporations. see businessregulatory matters. we believe we are in substantial compliance with these laws, rules and regulations based upon what we believe are reasonable and defensible interpretations of these laws, rules and regulations. however, federal and state laws are broadly worded and may be interpreted or applied by prosecutorial, regulatory or judicial authorities in ways that we cannot predict. accordingly, our arrangements and business practices may be the subject of government scrutiny or be found to violate applicable laws. if federal or state government officials challenge our operations or arrangements with third parties that we have structured based upon our interpretation of these laws, rules and regulations, the challenge could potentially disrupt our business operations and we may incur substantial defense costs, even if we successfully defend our interpretation of these laws, rules and regulations. in addition, if the government successfully challenges our interpretation as to the applicability of these laws, rules and regulations as they relate to our operations and arrangements with third parties, that may have a material adverse effect on our business, financial condition and results of operations. in the event regulatory action were to limit or prohibit us from carrying on our business as we presently conduct it or from expanding our operations to certain jurisdictions, we may need to make structural, operational and organizational modifications to our company and/or our contractual arrangements with third party payers, physicians, professional corporations and hospitals. our operating costs could increase significantly as a result. we could also lose contracts or our revenues could decrease under existing contracts. moreover, our financing agreements may also prohibit modifications to our current structure and consequently require us to obtain the 14 consent of the holders of such indebtedness or require the refinancing of such indebtedness. any restructuring would also negatively impact our operations because our managements time and attention would be diverted from running our business in the ordinary course. for example, while we believe that our operations and arrangements comply substantially with existing applicable laws relating to the corporate practice of medicine and fee splitting, we cannot assure you that our existing contractual arrangements, including non-competition agreements with physicians, professional corporations and hospitals, will not be successfully challenged in certain states as unenforceable or as constituting the unlicensed practice of medicine or prohibited fee splitting. in this event, we could be subject to adverse judicial or administrative interpretations or to civil or criminal penalties, our contracts could be found to be legally invalid and unenforceable or we could be required to restructure our contractual arrangements with our affiliated physician groups.we are subject to billing investigations by federal and state authorities that could have a material adverse effect on our business, financial conditions and results of operations. state and federal statutes impose substantial penalties, including civil and criminal fines, exclusion from participation in government healthcare programs and imprisonment, on entities or individuals (including any individual corporate officers or physicians deemed responsible) that fraudulently or wrongfully bill governmental or other third-party payers for healthcare services. in addition, federal and certain state laws allow a private person to bring a civil action in the name of the u.s. government for false billing violations or other types of false claims. we believe that additional audits, inquiries and investigations from government agencies will continue to occur from time to time in the ordinary course of our business, which could result in substantial defense costs to us and a diversion of managements time and attention. such pending or future audits, inquiries or investigations, or the public disclosure of such matters, may have a material adverse effect on our business, financial condition and results of operations.we are subject to complex rules and regulations that govern our licensing and certification, and the failure to comply with these rules can result in delays in, or loss of, reimbursement for our services or civil or criminal sanctions. we, our affiliated physicians and the facilities in which we operate are subject to various federal, state and local licensing and certification laws and regulations and accreditation standards and other laws relating to, among other things, the adequacy of medical care, equipment, personnel and operating policies and procedures. we are also subject to periodic inspection by governmental and other authorities to assure continued compliance with the various standards necessary for licensing and accreditations. in certain jurisdictions, changes in our ownership structure require pre- or post-notification to governmental licensing and certification agencies. relevant laws and regulations may also require re-application and approval to maintain or renew our operating authorities or require formal application and approval to continue providing services under certain government contracts. the relevant laws and regulations are complex and may be unclear or subject to interpretation. we are pursuing the steps we believe we must take to retain or obtain all requisite operating authorities. while we have made reasonable efforts to substantially comply with federal, state and local licensing and certification laws and regulations and accreditation standards based upon what we believe are reasonable and defensible interpretations of these laws, regulations and standards, agencies that administer these programs may find that we have failed to comply in some material respects. failure to comply with these licensing, certification and accreditation laws, regulations and standards could result in our services being found non-reimbursable or prior payments being subject to recoupment, and can give rise to civil or, in extreme cases, criminal penalties. in order to receive payment from medicare, medicaid and certain other government programs, healthcare providers are required to enroll in these programs by completing complex enrollment applications. 15 certain government programs, including medicare and medicaid programs, require notice or re-enrollment when certain ownership changes occur. generally, in jurisdictions where we are required to obtain a new licensing authority, we may also be required to re-enroll in that jurisdictions government payer program. if the payer requires us to complete the re-enrollment process prior to submitting reimbursement requests, we may be delayed in payment, receive refund requests or be subject to recoupment for services we provide in the interim. compliance with these change in ownership requirements is complicated by the fact that they differ from jurisdiction to jurisdiction, and in some cases are not uniformly applied or interpreted even within the same jurisdiction. failure to comply with these enrollment and reporting requirements could lead not only to delays in payment and refund requests, but in extreme cases could give rise to civil (including refunding of payments for services rendered) or criminal penalties in connection with prior changes in our operations and ownership structure. while we made reasonable efforts to substantially comply with these requirements in connection with prior changes in our operations and ownership structure, the agencies that administer these programs may find that we have failed to comply in some material respects.we could be subject to professional liability lawsuits, some of which we may not be fully insured against or reserved for, which could adversely affect our financial condition and results of operations. in recent years, physicians, hospitals and other participants in the healthcare industry have become subject to an increasing number of lawsuits alleging medical malpractice and related legal theories such as negligent hiring, supervision and credentialing, and vicarious liability for acts of their employees or independent contractors. many of these lawsuits involve large claims and substantial defense costs. although we do not engage in the practice of medicine or provide medical services nor do we control the practice of medicine by our affiliated physicians or affiliated medical groups or the compliance with regulatory requirements applicable to such physicians and physician groups, we have been and are involved in this type of litigation, and we may become so involved in the future. in addition, through our management of hospital departments and provision of non-physician healthcare personnel, patients who receive care from physicians or other healthcare providers affiliated with medical organizations and physician groups with whom we have a contractual relationship could sue us. effective march12, 2003, we began insuring our professional liability risks principally through a program of self-insurance reserves, commercial insurance and a captive insurance company arrangement. under our current professional liability insurance program, our exposure for claim losses under professional liability insurance policies provided to affiliated physicians and other healthcare practitioners is limited to the amounts of individual policy coverage limits but there is no limit for claim losses that exceed aggregate losses incurred under all insurance provided to affiliated physicians and other healthcare practitioners or for individual or aggregate professional liability losses incurred by us or other corporate entities that exceed aggregate losses incurred under such insurance. further, we may be exposed to individual claim losses in excess of limits of coverage under existing or historical insurance programs. while our provisions for professional liability claims and expenses are determined through actuarial estimates, such actuarial estimates may be exceeded by actual losses and related expenses in the future. claims, regardless of their merit or outcome, may also adversely affect our reputation and ability to expand our business. we could also be liable for claims against our affiliated physicians for incidents that occurred but were not reported during periods for which claims-made insurance covered the related risk. under generally accepted accounting principles, the cost of professional liability claims, which includes costs associated with litigating or settling claims, is accrued when the incidents that give rise to the claims occur. the accrual includes an estimate of the losses that will result from incidents, which occurred during the claims-made period, but were not reported during that period. these claims are referred to as incurred-but-not-reported claims, or ibnr claims. with respect to those physicians for whom we provide coverage for claims that occurred during periods prior to march12, 2003, we have acquired extended reporting period coverage, or tail coverage, for ibnr claims from a commercial insurance company. claim losses for periods prior to march12, 2003 may exceed the limits of available insurance coverage or reserves established by us for any losses in excess of such insurance coverage limits. 16 furthermore, for those portions of our professional liability losses that are insured through commercial insurance companies, we are subject to the credit risk of those insurance companies. while we believe our commercial insurance company providers are currently creditworthy, such insurance companies may not remain so in the future.the reserves that we have established for our professional liability losses are subject to inherent uncertainties and any deficiency may lead to a reduction in our net earnings. we have established reserves for losses and related expenses that represent estimates at a given point in time involving actuarial and statistical projections of our expectations of the ultimate resolution and administration of costs of losses incurred for professional liability risks for the period on and after march12, 2003. we have also established a reserve for potential losses in excess of commercial insurance aggregate coverage limits for the period prior to march12, 2003. insurance reserves are inherently subject to uncertainty. our reserves are based on historical claims, demographic factors, industry trends, severity and exposure factors and other actuarial assumptions. studies of projected ultimate professional liability losses are performed at least annually. we use the actuarial estimates to establish reserves. our reserves could be significantly affected should current and future occurrences differ from historical claim trends and expectations. while claims are monitored closely when estimating reserves, the complexity of the claims and the wide range of potential outcomes often hampers timely adjustments to the assumptions used in these estimates. actual losses and related expenses may deviate, perhaps substantially, from the reserve estimates reflected in our financial statements. if our estimated reserves are determined to be inadequate, we will be required to increase reserves at the time of such determination, which would result in a corresponding reduction in our net earnings in the period in which such deficiency is determined. see managements discussion and analysis of financial condition and results of operationscritical accounting policies and estimatesinsurance reserves, note 14 to the audited consolidated financial statements and note 11 to the unaudited consolidated financial statements included in this prospectus.we depend on reimbursements by third-party payers, as well as payments by individuals, which could lead to delays and uncertainties in the reimbursement process. we receive a substantial portion of our payments for healthcare services on a fee for service basis from third-party payers, including medicare, medicaid, the u.s. governments military healthcare system and other governmental programs, private insurers and managed care organizations. we received approximately 57% of our net revenues less provision for uncollectibles from such third-party payers during 2008 and 2007. such amounts included approximately 24% from medicare and medicaid, collectively, in 2008 and 2007. the reimbursement process is complex and can involve lengthy delays. third-party payers continue their efforts to control expenditures for healthcare, including proposals to revise reimbursement policies. while we recognize revenue when healthcare services are provided, there can be delays before we receive payment. in addition, third-party payers may disallow, in whole or in part, requests for reimbursement based on determinations that certain amounts are not reimbursable under plan coverage, that services provided were not medically necessary, that services rendered in an ed did not require ed level care or that additional supporting documentation is necessary. retroactive adjustments may change amounts realized from third-party payers. we are subject to governmental audits of our reimbursement claims under medicare, medicaid, the u.s. governments military healthcare system and other governmental programs and may be required to repay these agencies if a finding is made that we were incorrectly reimbursed. delays and uncertainties in the reimbursement process may adversely affect accounts receivable, increase the overall costs of collection and cause us to incur additional borrowing costs. we also may not be paid with respect to co-payments and deductibles that are the patients financial responsibility, or in those instances when physicians provide healthcare services to uninsured and underinsured individuals. amounts not covered by third-party payers are the obligations of individual patients for which we may not receive whole or partial payment. we may not receive whole or partial payments from uninsured and underinsured individuals. as a result of government laws and regulations requiring hospitals to screen and treat 17 patients who have an emergency medical condition regardless of their ability to pay and our obligation to provide such screening or treatment, a substantial increase in self-pay patients could result in increased costs associated with physician services for which sufficient net revenues less provision for uncollectibles are not realized to offset such additional physician service costs. in such an event, our earnings and cash flow would be adversely affected, potentially affecting our ability to maintain our restrictive debt covenant ratios and meet our financial obligations. in summary, the risks associated with third-party payers, co-payments and deductibles and uninsured individuals and the inability to monitor and manage accounts receivable successfully could have a material adverse effect on our business, financial condition and results of operations. furthermore, our collection policies or our provisions for allowances for medicare, medicaid and contractual discounts and doubtful accounts receivable may not be adequate.we are subject to the financial risks associated with our fee for service contracts which could decrease our revenues, including changes in patient volume, mix of insured and uninsured patients and patients covered by government sponsored healthcare programs and third party reimbursement rates. we derive our revenues primarily through two types of arrangements. if we have a flat fee contract with a hospital, the hospital bills and collects fees for physician services and remits a negotiated amount to us monthly. if we have a fee for service contract with a hospital, either we or our affiliated physicians collect the fees for physician services. consequently, under fee for service contracts, we assume the financial risks related to changes in the mix of insured, uninsured and underinsured patients and patients covered by government sponsored healthcare programs, third party reimbursement rates and changes in patient volume. we are subject to these risks because under our fee for service contracts, our fees decrease if a smaller number of patients receive physician services or if the patients who do receive services do not pay their bills for services rendered or we are not fully reimbursed for services rendered. our fee for service contractual arrangements also involve a credit risk related to services provided to uninsured and underinsured individuals. this risk is exacerbated in the hospital ed physician-staffing context because federal law requires hospital eds to evaluate all patients regardless of the severity of illness or injury. we believe that uninsured and underinsured patients are more likely to seek care at hospital eds because they frequently do not have a primary care physician with whom to consult. we also collect a relatively smaller portion of our fees for services rendered to uninsured and underinsured patients than for services rendered to insured patients. in addition, fee for service contracts also have less favorable cash flow characteristics in the start-up phase than traditional flat-rate contracts due to longer collection periods. our revenues could also be reduced if third-party payers successfully negotiate lower reimbursement rates for our physician services.failure to timely or accurately bill for our services could have a negative impact on our net revenues, bad debt expense and cash flow. billing for ed visits in a hospital setting and other physician-related services is complex. the practice of providing medical services in advance of payment or, in many cases, prior to assessment of ability to pay for such services, may have a significant negative impact on our net revenues, bad debt expense and cash flow. we bill numerous and varied payers, including self-pay patients, various forms of commercial insurance companies and medicare, medicaid, the u.s. governments military healthcare system and other government programs. these different payers typically have differing forms of billing requirements that must be met prior to receiving payment for services rendered. reimbursement to us is typically conditioned on our providing the proper procedure and diagnosis codes. incorrect or incomplete documentation and billing information could result in non-payment for services rendered. additional factors that could complicate our billing include: disputes between payers as to which party is responsible for payment; variation in coverage for similar services among various payers; 18 the difficulty of adherence to specific compliance requirements, coding and various other procedures mandated by responsible parties; failure to obtain proper physician enrollment and documentation in order to bill various commercial and governmental payers; failure to identify and obtain the proper insurance coverage for the patient; a | 0.043260 | 22.02 | 1108.86 | 940.946 | 159600000 | 1423.441 | False | 2009 |
| 3322 | 158.0 | 446.4 | NaN | 838.972304 | WESTLAKE VILLAGE | 12.2800 | 0.062 | NaN | 9786.87 | False | NYSE | False | True | Consumer NonDurables -- Food, Tobacco, Textiles, Apparel, Leather, Toys | Agriculture | Consumer Durables, NonDurables, Wholesale, Retail, and Some Services (Laundries, Repair Shops) | NaN | NaN | Dole Food Co Inc | 0.389091 | 5357250.0 | Goldman Sachs & Co\nMerrill Lynch & Co Inc\nDeutsche Bank Securities Corp.\nWells Fargo Bank NA | 2123.93 | 84.085 | NaN | 3 | 9 | NaN | 12.50 | NaN | False | NaN | 0 | 4.667222 | 9.00100 | 9.001 | 42.005 | risk factors investing in our common stock involves a high degree of risk. you should carefully consider the risks described below and the other information in this prospectus, including the consolidated financial statements and the related notes, before making a decision to buy our common stock. if any of the following risks actually occurs, our business could be harmed. in that case, the trading price of our common stock could decline, and you may lose all or part of your investment. risks relating to our business and industryadverse weather conditions, natural disasters, crop disease, pests and other natural conditions can impose significant costs and losses on our business. fresh produce, including produce used in canning and other packaged food operations, is vulnerable to adverse weather conditions, including windstorms, floods, drought and temperature extremes, which are quite common but difficult to predict. unfavorable growing conditions can reduce both crop size and crop quality. this risk is particularly true with respect to regions or countries from which we source a significant percentage of our products. in extreme cases, entire harvests may be lost in some geographic areas. these factors can increase costs, decrease revenues and lead to additional charges to earnings, which may have a material adverse effect on our business, results of operations and financial condition. fresh produce is also vulnerable to crop disease and to pests, which may vary in severity and effect, depending on the stage of production at the time of infection or infestation, the type of treatment applied and climatic conditions. for example, black sigatoka is a fungal disease that affects banana cultivation in most areas where they are grown commercially. the costs to control this disease and other infestations vary depending on the severity of the damage and the extent of the plantings affected. moreover, there can be no assurance that available technologies to control such infestations will continue to be effective. these infestations can increase costs, decrease revenues and lead to additional charges to earnings, which may have a material adverse effect on our business, results of operations and financial condition.our business is highly competitive and we cannot assure you that we will maintain our current market share. many companies compete in our different businesses. however, only a few well-established companies operate on both a national and a regional basis with one or several branded product lines. we face strong competition from these and other companies in all our product lines. important factors with respect to our competitors include the following: some of our competitors may have greater operating flexibility and, in certain cases, this may permit them to respond better or more quickly to changes in the industry or to introduce new products and packaging more quickly and with greater marketing support. several of our packaged food product lines are sensitive to competition from national or regional brands, and many of our product lines compete with imports, private label products and fresh alternatives. we cannot predict the pricing or promotional actions of our competitors or whether those actions will have a negative effect on us. there can be no assurance that we will continue to compete effectively with our present and future competitors, and our ability to compete could be materially adversely affected by our leveraged position. our earnings are sensitive to fluctuations in market prices and demand for our products. excess supplies often cause severe price competition in our industry. growing conditions in various parts of the world, particularly weather conditions such as windstorms, floods, droughts and freezes, as well as diseases and pests, are primary factors affecting market prices because of their influence on the supply and quality of product. fresh produce is highly perishable and generally must be brought to market and sold soon after harvest. some items, such as lettuce, must be sold more quickly, while other items can be held in cold storage for longer periods of time. the selling price received for each type of produce depends on all of these factors, including the availability and quality of the produce item in the market, and the availability and quality of competing types of produce. in addition, general public perceptions regarding the quality, safety or health risks associated with particular food products could reduce demand and prices for some of our products. to the extent that consumer preferences evolve away from products that we produce for health or other reasons, and we are unable to modify our products or to develop products that satisfy new consumer preferences, there will be a decreased demand for our products. however, even if market prices are unfavorable, produce items which are ready to be, or have been harvested must be brought to market promptly. a decrease in the selling price received for our products due to the factors described above could have a material adverse effect on our business, results of operations and financial condition.our earnings are subject to seasonal variability. our earnings may be affected by seasonal factors, including: the seasonality of our supplies and consumer demand; the ability to process products during critical harvest periods; and the timing and effects of ripening and perishability. although banana production tends to be relatively stable throughout the year, banana pricing is seasonal because bananas compete against other fresh fruit that generally comes to market beginning in the summer. as a result, banana prices are typically higher during the first half of the year. our fresh vegetables segment experiences some seasonality as reflected by higher earnings in the first half of the year. our packaged foods segment experiences peak demand during certain well-known holidays and observances.currency exchange fluctuations may impact the results of our operations. we distribute our products in more than 90 countries throughout the world. our international sales are usually transacted in u.s.dollars, and european and asian currencies. our results of operations are affected by fluctuations in currency exchange rates in both sourcing and selling locations. although we enter into foreign currency exchange forward contracts from time to time to reduce our risk related to currency exchange fluctuation, our results of operations may still be impacted by foreign currency exchange rates, primarily the yen-to-u.s.dollar and euro-to-u.s.dollar exchange rates. for instance, we currently estimate that a 10% strengthening of the u.s.dollar relative to the japanese yen, euro and swedish krona would have reduced 2008 operating income by approximately $76million excluding the impact of foreign currency exchange hedges. because we do not hedge against all of our foreign currency exposure, our business will continue to be susceptible to foreign currency fluctuations.increases in commodity or raw product costs, such as fuel, paper, plastics and resins, could adversely affect our operating results. many factors may affect the cost and supply of fresh produce, including external conditions, commodity market fluctuations, currency fluctuations, changes in governmental laws and regulations, 15 agricultural programs, severe and prolonged weather conditions and natural disasters. increased costs for purchased fruit and vegetables have in the past negatively impacted our operating results, and there can be no assurance that they will not adversely affect our operating results in the future. the price of various commodities can significantly affect our costs. for example, the price of bunker fuel used in shipping operations, including fuel used in ships that we own or charter, is an important variable component of transportation costs. our fuel costs have increased substantially in recent years, and there can be no assurance that there will not be further increases in the future. in addition, fuel and transportation cost is a significant component of the price of much of the produce that we purchase from growers or distributors, and there can be no assurance that we will be able to pass on to our customers the increased costs we incur in these respects. the cost of paper and tinplate are also significant to us because some of our products are packed in cardboard boxes or cans for shipment. if the price of paper or tinplate increases and we are not able to effectively pass these price increases along to our customers, then our operating income will decrease. increased costs for paper and tinplate have in the past negatively impacted our operating income, and there can be no assurance that these increased costs will not adversely affect our operating results in the future.we face risks related to our former use of the pesticide dbcp. we formerly used dibromochloropropane, or dbcp, a nematocide that was used on a variety of crops throughout the world. the registration for dbcp with the u.s.government was cancelled in 1979 based in part on an apparent link to male sterility among chemical factory workers who produced dbcp. there are a number of pending lawsuits in the united states and other countries against the manufacturers of dbcp and the growers, including us, who used it in the past. the cost to defend or settle these lawsuits, and the costs to pay any judgments or settlements resulting from these lawsuits, or other lawsuits which might be brought, could have a material adverse effect on our business, financial condition or results of operations. see note11 to the condensed consolidated financial statements for the second quarter of fiscal year 2009 included elsewhere in this prospectus.the use of herbicides and other potentially hazardous substances in our operations may lead to environmental damage and result in increased costs to us. we use herbicides and other potentially hazardous substances in the operation of our business. we may have to pay for the costs or damages associated with the improper application, accidental release or the use or misuse of such substances. our insurance may not be adequate to cover such costs or damages or may not continue to be available at a price or under terms that are satisfactory to us. in such cases, payment of such costs or damages could have a material adverse effect on our business, results of operations and financial condition.the financing arrangements for the going-private merger transactions in 2003may increase our exposure to tax liability. a portion of our senior secured credit facilities have been incurred by our foreign subsidiaries and were used to fund the going-private merger transactions in 2003 through which mr.murdock became our sole, indirect stockholder. on august27, 2009, the internal revenue service, or irs, completed its examination of our u.s.federal income tax returns for the years 2002 to 2005 and issued a revenue agents report, or rar, that includes various proposed adjustments, including with respect to the going-private merger transactions. the irs is proposing that certain funding used in the going-private merger transactions is currently taxable and that certain related investment banking fees are not deductible. the net tax deficiency associated with the rar is $122million plus interest. we will file a protest letter vigorously challenging the proposed adjustments contained in the rar and will pursue resolution of these issues with the appeals division of the irs. however, we may not be successful with respect to some or all of our appeal, which could result in a material tax liability and 16 could adversely affect our results of operations and financial condition. we believe, based in part upon the advice of our tax advisors, that our tax treatment of such transactions was appropriate.we face other risks in connection with our international operations. our operations are heavily dependent upon products grown, purchased and sold internationally. in addition, our operations are a significant factor in the economies of many of the countries in which we operate, increasing our visibility and susceptibility to legal or regulatory changes. these activities are subject to risks that are inherent in operating in foreign countries, including the following: foreign countries could change laws and regulations or impose currency restrictions and other restraints; in some countries, there is a risk that the government may expropriate assets; some countries impose burdensome tariffs and quotas; political changes and economic crises may lead to changes in the business environment in which we operate; international conflict, including terrorist acts, could significantly impact our business, financial condition and results of operations; in some countries, our operations are dependent on leases and other agreements;and economic downturns, political instability and war or civil disturbances may disrupt production and distribution logistics or limit sales in individual markets. banana imports from latin america are subject to a tariff of 176 euros per metric ton for entry into the european union, or eu, market. under the eus previous banana regime, banana imports from latin america were subject to a tariff of 75euros per metric ton and were also subject to both import license requirements and volume quotas. these license requirements and volume quotas had the effect of limiting access to the eu banana market. the increase in the applicable tariff and the elimination of the volume restrictions applicable to latin american bananas may increase volatility in the market, which could materially adversely affect our business, results of operations or financial condition. see managements discussion and analysis of financial condition and results of operation other matters. in 2005, we received a tax assessment from honduras of approximately $137million (including the claimed tax, penalty, and interest through the date of assessment) relating to the disposition of all of our interest in cervecera hondurea, s.a. in 2001. we have been contesting the tax assessment. see note11 in the notes to the condensed consolidated financial statements for the second quarter of fiscal year 2009 included elsewhere in this prospectus.we may be required to pay significant penalties under european antitrust laws. the european commission, or ec, issued a decision imposing a 45.6million fine against dole and its german subsidiary, or the decision, on october15, 2008. on december24, 2008, we appealed the decision by filing an application for annulment, or application, with the european court of first instance, or cfi. on december3, 2008, the ec agreed in writing that if dole made an initial payment of $10million (7.6million) to the ec on or before january22, 2009, then the ec would stay the deadline for a provisional payment, or coverage by a prime bank guaranty, of the remaining balance (plus interest as from january22, 2009), until april30, 2009. dole made this initial $10million payment on january21, 2009, and dole provided the required bank guaranty for the remaining balance of the fine to the ec by the deadline of april30, 2009. 17 we believe that we have not violated the european competition laws and that our application has substantial legal merit, both for an annulment of the decision and fine in their entirety, or for a substantial reduction of the fine, but no assurances can be given that we will be successful on appeal. furthermore, the ultimate resolution of these items could materially impact our liquidity. we cannot predict the timing or outcome of our appeal of the ecs decision. see note11 in the notes to the condensed consolidated financial statements for the second quarter of fiscal year 2009 included elsewhere in this prospectus.the current global economic downturn could continue to result in a decrease in our sales and revenue, which could continue to adversely affect the results of our operations, and we cannot predict the extent or duration of these trends. as a result of the current global economic downturn, consumers may continue to reduce their purchases and seek value pricing, which may continue to affect sales and pricing of some of our products. such trends could continue to adversely affect the results of our operations and there can be no assurance whether or when consumer confidence will return or that these trends will not increase.global capital and credit market issues could negatively affect our liquidity, increase our costs of borrowing and disrupt the operations of our suppliers and customers. the global capital and credit markets have experienced increased volatility and disruption over the past year, making it more difficult for companies to access those markets. we depend in part on stable, liquid and well-functioning capital and credit markets to fund our operations. although we believe that our operating cash flows, access to capital and credit markets and existing revolving credit agreement will permit us to meet our financing needs for the foreseeable future, there can be no assurance that continued or increased volatility and disruption in the capital and credit markets will not impair our liquidity or increase our costs of borrowing. our business could also be negatively impacted if our suppliers or customers experience disruptions resulting from tighter capital and credit markets or a slowdown in the general economy.the current global economic downturn may have other impacts on participants in our industry, which cannot be fully predicted. the full impact of the current global economic downturn on customers, vendors and other business partners cannot be anticipated. for example, major customers or vendors may have financial challenges unrelated to us that could result in a decrease in their business with us or, in extreme cases, cause them to file for bankruptcy protection. similarly, parties to contracts may be forced to breach their obligations under those contracts. although we exercise prudent oversight of the credit ratings and financial strength of our major business partners and seek to diversify our risk to any single business partner, there can be no assurance that there will not be a bank, insurance company, supplier, customer or other financial partner that is unable to meet its contractual commitments to us. similarly, stresses and pressures in the industry may result in impacts on our business partners and competitors which could have wide ranging impacts on the future of the industry.terrorism and the uncertainty of war may have a material adverse effect on our operating results. terrorist attacks, such as the attacks that occurred in new york and washington,d.c. on september11, 2001, the subsequent response by the united states in afghanistan, iraq and other locations, and other acts of violence or war in the united states or abroad may affect the markets in which we operate and our operations and profitability. from time to time in the past, our operations or personnel have been the targets of terrorist or criminal attacks, and the risk of such attacks impacts our operations and results in increased security costs. further terrorist attacks against the united states or operators of united states-owned businesses outside the united states may occur, or 18 hostilities could develop based on the current international situation. the potential near-term and long-term effect these attacks may have on our business operations, our customers, the markets for our products, the united states economy and the economies of other places we source or sell our products is uncertain. the consequences of any terrorist attacks, or any armed conflicts, are unpredictable, and we may not be able to foresee events that could have an adverse effect on our markets or our business.our worldwide operations and products are highly regulated in the areas of food safety and protection of human health and the environment. our worldwide operations are subject to a broad range of foreign, federal, state and local environmental, health and safety laws and regulations, including laws and regulations governing the use and disposal of pesticides and other chemicals. these regulations directly affect day-to-day operations, and violations of these laws and regulations can result in substantial fines or penalties. there can be no assurance that these fines or penalties would not have a material adverse effect on our business, results of operations and financial condition. to maintain compliance with all of the laws and regulations that apply to our operations, we have been and may be required in the future to modify our operations, purchase new equipment or make capital improvements. further, we may recall a product (voluntarily or otherwise) if we or the regulators believe it presents a potential risk. in addition, we have been and in the future may become subject to lawsuits alleging that our operations and products caused personal injury or property damage.we are subject to the risk of product contamination and product liability claims. the sale of food products for human consumption involves the risk of injury to consumers. such injuries may result from tampering by unauthorized third parties, product contamination or spoilage, including the presence of foreign objects, substances, chemicals, other agents, or residues introduced during the growing, storage, handling or transportation phases. we have from time to time been involved in product liability lawsuits, none of which were material to our business. while we are subject to governmental inspection and regulations and believe our facilities comply in all material respects with all applicable laws and regulations, we cannot be sure that consumption of our products will not cause a health-related illness in the future or that we will not be subject to claims or lawsuits relating to such matters. for example, in the fall of 2006, a third party from whom we and others had purchased spinach recalled certain packaged fresh spinach due to contamination by e. coli. even if a product liability claim is unsuccessful or is not fully pursued, the negative publicity surrounding any assertion that our products caused illness or injury could adversely affect our reputation with existing and potential customers and our corporate and brand image. moreover, claims or liabilities of this sort might not be covered by our insurance or by any rights of indemnity or contribution that we may have against others. we maintain product liability insurance, however, we cannot be sure that we will not incur claims or liabilities for which we are not insured or that exceed the amount of our insurance coverage.we are subject to transportation risks. an extended interruption in our ability to ship our products could have a material adverse effect on our business, financial condition and results of operations. similarly, any extended disruption in the distribution of our products could have a material adverse effect on our business, financial condition and results of operations. while we believe we are adequately insured and would attempt to transport our products by alternative means if we were to experience an interruption due to strike, natural disasters or otherwise, we cannot be sure that we would be able to do so or be successful in doing so in a timely and cost-effective manner. events or rumors relating to the dole brand could significantly impact our business. consumer and institutional recognition of the dole trademarks and related brands and the association of these brands with high quality and safe food products are an integral part of our business. the occurrence of any events or rumors that cause consumers and/or institutions to no longer associate these brands with high quality and safe food products may materially adversely affect the value of the dole brand name and demand for our products. we have licensed the dole brand name to several affiliated and unaffiliated companies for use in the united states and abroad. acts or omissions by these companies over which we have no control may also have such adverse effects.a portion of our workforce is unionized and labor disruptions could decrease our profitability. as of june20, 2009, approximately 35% of our employees worldwide worked under various collective bargaining agreements. our collective bargaining agreements with expirations in fiscal 2009 have each been renewed, other than one agreement that is currently under extension. our other collective bargaining agreements will expire in later years. we cannot assure you that we will be able to negotiate these or other collective bargaining agreements on the same or more favorable terms as the current agreements, or at all, and without production interruptions, including labor stoppages. a prolonged labor dispute, which could include a work stoppage, could have a material adverse effect on the portion of our business affected by the dispute, which could impact our business, results of operations and financial condition. risks relating to our indebtednessour substantial indebtedness could adversely affect our operations, including our ability to perform our obligations under our debt obligations. we have a substantial amount of indebtedness. as of june20, 2009, we had approximately $1.2billion in senior secured indebtedness, $738million in senior unsecured indebtedness, including outstanding senior notes and debentures, approximately $66million in capital leases and approximately $53million in unsecured notes payable and other indebtedness. in addition, in connection with the merger transaction, we will assume $85million of dhm holdings debt that will be repaid from a portion of the net proceeds of this offering. our substantial indebtedness could have important consequences to you. for example, our substantial indebtedness may: make it more difficult for us to satisfy our obligations; limit our ability to borrow additional amounts in the future for working capital, capital expenditures, acquisitions, debt service requirements, execution of our growth strategy or other purposes or make such financing more costly; result in a triggering of customary cross-default and cross-acceleration provisions with respect to certain of our debt obligations if an event of default or acceleration occurs under one of our other debt obligations; require us to dedicate a substantial portion of our cash flow from operations to payments on our indebtedness, which would reduce the availability of our cash flow to fund future working capital, capital expenditures, acquisitions and other general corporate purposes (by way of example, the issuance of our 13.875% senior secured notes due 2014, or 2014 notes, and amendment to the senior secured credit facilities during march 2009 increased our interest rates on these instruments significantly as compared to the interest rates as they existed prior to such events); expose us to the risk of increased interest rates, as certain of our borrowings are at variable rates of interest; 20 require us to sell assets (beyond those assets currently classified as assets held-for-sale) to reduce indebtedness or influence our decisions about whether to do so; increase our vulnerability to competitive pressures and to general adverse economic and industry conditions, including fluctuations in market interest rates or a downturn in our business; limit our flexibility in planning for, or reacting to, changes in our business and the industries in which we operate; restrict us from making strategic acquisitions or pursuing business opportunities; place us at a disadvantage compared to our competitors that have relatively less indebtedness;and limit, along with the restrictive covenants in our credit facilities and senior note indentures, among other things, our ability to borrow additional funds. failing to comply with those covenants could result in an event of default which, if not cured or waived, could have a material adverse effect on our business, financial condition and results of operations.we may be unable to generate sufficient cash flow to service our debt obligations. to service our debt, we require a significant amount of cash. our ability to generate cash, make scheduled payments or refinance our obligations depends on our successful financial and operating performance. our financial and operating performance, cash flow and capital resources depend upon prevailing economic conditions and various financial, business and other factors, many of which are beyond our control. these factors include among others: economic and competitive conditions; changes in laws and regulations; operating difficulties, increased operating costs or pricing pressures we may experience; and delays in implementing any strategic projects. if our cash flow and capital resources are insufficient to fund our debt service obligations, we may be forced to reduce or delay capital expenditures, sell material assets or operations, obtain additional capital or restructure our debt. if we are required to take any actions referred to above, it could have a material adverse effect on our business, financial condition and results of operations. in addition, we cannot assure you that we would be able to take any of these actions on terms acceptable to us, or at all, that these actions would enable us to continue to satisfy our capital requirements or that these actions would be permitted under the terms of our various debt agreements, in any of which events the default and cross-default risks set forth in the risk factor below titled restrictive covenants in our debt instruments restrict or prohibit our ability to engage in or enter into a variety of transactions, which could adversely restrict our financial and operating flexibility and subject us to other risks would become relevant.despite our current indebtedness levels and the restrictive covenants set forth in agreements governing our indebtedness, we and our subsidiaries may still incur significant additional indebtedness, including secured indebtedness. incurring more indebtedness could increase the risks associated with our substantial indebtedness. subject to the restrictions in our senior secured credit facilities and the indentures governing our 7.25% senior notes due 2010, or 2010 notes, our 8.875% senior notes due 2011, or 2011 notes, our 8.75% debentures due 2013, or 2013 debentures, our 2014 notes and our 8% senior secured notes due 2016, or 2016 notes, we and certain of our subsidiaries may incur significant additional indebtedness, including additional secured indebtedness. although the terms of our senior secured credit facilities and the indentures governing our 2010 notes, our 2011 notes, our 2013 debentures, our 2014 notes and our 2016 notes contain restrictions on the incurrence of additional indebtedness, these 21 restrictions are subject to a number of qualifications and exceptions, and additional indebtedness incurred in compliance with these restrictions could be significant. if new debt is added to our and our subsidiaries current debt levels, the related risks that we now face could increase.restrictive covenants in our debt instruments restrict or prohibit our ability to engage in or enter into a variety of transactions, which could adversely restrict our financial and operating flexibility and subject us to other risks. the indentures governing our 2010 notes, our 2011 notes, our 2013 debentures, our 2014 notes, our 2016 notes and our senior secured credit facilities, contain various restrictive covenants that limit our and our subsidiaries ability to take certain actions. in particular, these agreements limit our and our subsidiaries ability to, among other things: incur additional indebtedness; make restricted payments (including paying dividends on, redeeming or repurchasing our capital stock); issue preferred stock of subsidiaries; make certain investments or acquisitions; create liens on our assets to secure debt; engage in certain types of transactions with affiliates; place restrictions on the ability of restricted subsidiaries to make payments to us; merge, consolidate or transfer substantially all of our assets; and transfer and sell assets. any or all of these covenants could have a material adverse effect on our business by limiting our ability to take advantage of financing, merger and acquisition or other corporate opportunities and to fund our operations. any future debt could also contain financial and other covenants more rest | 0.020473 | 40.85 | 1065.48 | 4107.023 | 446437500 | 6778.521 | False | 2009 |
| 3323 | 3.0 | 17.5 | 15000.0 | NaN | DENVER | 11.2500 | 0.052 | 26.64 | 5992.86 | False | NASDQ | False | True | Finance | Banking | Other | NaN | NaN | Matrix Capital Corp,Denver,Co | NaN | 262500.0 | Piper Jaffray Inc | 1247.56 | NaN | NaN | 0 | 3 | NaN | 10.00 | NaN | False | NaN | 0 | 6.445000 | 7.00100 | 7.001 | 19.335 | NaN | NaN | 29.65 | 701.46 | NaN | 17500000 | NaN | False | 1996 |
| 3324 | 35.0 | 231.0 | 10000.0 | 409.297888 | PITTSBURGH | 22.7500 | 0.016 | 48.21 | 5697.48 | False | NYSE | False | False | Other | Restaraunts, Hotels, Motels | Other | NaN | NaN | Interstate Hotels Co | 0.461449 | 2431000.0 | Merrill Lynch & Co Inc | 1249.15 | -1.616 | NaN | 0 | 6 | NaN | 21.00 | NaN | False | NaN | 0 | 8.438167 | 9.00100 | 9.001 | 50.629 | RISK FACTORS In addition to the other information contained in this Prospectus, the following risks and investment considerations should be carefully considered before purchasing shares of Common Stock offered hereby. Each of the following factors may have a material adverse effect on the Company's operations, financial results, financial condition, liquidity, market valuation or market liquidity in future periods RISKS ASSOCIATED WITH THE LODGING INDUSTRY The Company is subject to the risks inherent in the lodging industry. In addition to the specific risks discussed below, these risks include changes in general, regional and local economic conditions, overbuilding, varying levels of demand for rooms and related services, changes in travel patterns, the recurring need for renovation, refurbishment and improvement of hotel properties, changes in governmental regulations that influence or determine wages, prices and construction and maintenance costs, changes in interest rates, the availability of financing and changes in real estate taxes and operating expensesCOMPETITION FOR GUESTS The lodging industry is highly competitive, and the Company's hotels generally are located in areas that contain numerous competitive properties Competitive factors in the lodging industry include room rates, quality of accommodations, name recognition, service levels and convenience of location and, to a lesser extent, the quality and scope of other amenities, including food and beverage facilities. Many of the properties with which the Company's hotels compete for guests are part of or owned by entities that have substantially greater financial or other resources than the CompanyRISKS ASSOCIATED WITH RAPID EXPANSION Growth Risks. The Company's revenues and net income have grown substantially during the past several years. Since consummation of the IPO, the Company's portfolio of Owned Hotels has increased from 14 hotels to 23 hotels, and the Company intends to continue to pursue a growth-oriented strategy for the foreseeable future, but there can be no assurance that the Company will achieve its growth objectives. The Company is subject to a variety of business risks generally associated with growing companies. The Company's ability to successfully pursue new growth opportunities will depend on a number of factors, including, among others, the Company's ability to identify suitable growth opportunities, finance acquisitions and integrate new hotels into its operations, as well as the competitive climate and the availability and cost of capital. While the Company believes that it will have sufficient resources to pursue its strategy, this belief is premised in part on adequate cash being generated from operations. The Company may in the future seek an additional increase in the capital available to it under its Acquisition Facility or otherwise obtain additional debt or equity financing, depending upon the amount of capital required to pursue future growth opportunities or address other needs, conditions in the capital markets and other factors. There can be no assurance that such increase or additional financing will be available to the Company on acceptable terms, if at all. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources." In addition, there can be no assurance that the Company will be able to successfully integrate new hotels into its operations or that new hotels will achieve revenue and profitability levels comparable to the Company's existing portfolio hotels. Furthermore, the Company's expansion within its existing markets could adversely affect the financial performance of its existing portfolio hotels and expansion into new markets may present operating and marketing challenges that are different from those currently encountered by the Company in its existing markets. There can be no assurance that the Company will anticipate all of the changing demands that expanding operations will impose on the Company. Acquisition and Development Risks. The Company expects to acquire additional hotels in the future. Acquisitions entail the risk that investments will fail to perform in accordance with expectations. In addition, the Company intends to selectively develop new mid-scale and upper economy hotels in the future. New project development is subject to a number of risks, including market or site deterioration after acquisition and the possibility of construction delays or cost overruns due to regulatory approvals, inclement weather, labor or material shortages, work stoppages and the continued availability of construction and permanent financing. 7 12 CERTAIN EFFECTS OF ACQUISITIONS Since its IPO, the Company has acquired nine hotels. Under the purchase method of accounting, the assets, liabilities and results of operations associated with such acquisitions have been included in the Company's financial position and results of operations since the respective dates thereofAccordingly, the financial position and results of operations of the Company as of and for the nine months ended September 30, 1996 and subsequent dates and periods are not comparable to the financial position and results of operations of the Company as of and for prior dates and periods. The pro forma financial information presented gives effect to the IPO, the IPO Acquisitions, the Post-IPO Acquisitions, the Pending Acquisitions, the Equity Inns Transaction, the issuance of 3,534,880 shares of Common Stock in this Offering and certain other adjustments described herein as if such transactions had been completed on prior dates. The pro forma information presented is not necessarily indicative of what the actual financial position and results of operations of the Company would have been as of and for the periods indicatedRISKS ASSOCIATED WITH OWNING OR LEASING REAL ESTATE At October 15, 1996, the Company owned fee title or controlling partnership interests in 23 of the 161 hotels it managed and operated 17 hotels under leases, ten of which are long-term leases (not including hotels the Company currently manages or leases as a result of the Equity Inns Transaction). In addition, the Company's business strategy includes the acquisition of additional hotels. Accordingly, the Company will be subject to varying degrees of risk generally related to owning or leasing real estate. These risks include, among others, changes in national, regional and local economic conditions, local real estate market conditions, changes in interest rates and in the availability, costs and terms of financing, liability for long-term lease obligations, the potential for uninsured casualty and other losses, the impact of present or future environmental legislation and compliance with environmental laws and adverse changes in zoning laws and other regulations, many of which are beyond the control of the Company. In addition, real estate investments are relatively illiquid; therefore, the ability of the Company to vary its portfolio of owned hotels in response to changes in economic and other conditions may be limitedTERMS OF MANAGEMENT AGREEMENTS On a pro forma basis net management revenues, including the Owned Hotels, represented 6.9% of the Company's total revenues for the nine months ended September 30, 1996. Hotel management agreements expire or are acquired, terminated or renegotiated in the ordinary course of the Company's business Typically, the Company's hotel management agreements may be terminated for various reasons, including default by the Company or sale of or foreclosure on the underlying property. In addition, approximately one-third of the Company's management agreements allow for termination without cause upon 30 to 90 days notice. An additional 21 management agreements allow for termination without cause upon 30 to 90 days notice with the payment of a termination fee. As of October 15, 1996, the Company had management agreements with remaining terms of less than five years for 103 of its 161 managed hotels. These 103 management agreements accounted for $10.7 million, or 3.4%, of the Company's total pro forma revenues for the nine months ended September 30, 1996. Sixteen of these management agreements (which generated $2.4 million, or 0.8%, of the Company's total pro forma revenues for the nine months ended September 30, 1996) are subject to termination in 1997. Although the net number of hotel management agreements to which the Company is a party has increased every year since 1987, there can be no assurance that the Company will continue to obtain new management agreements or that it will be able to renew or replace terminated or expired management agreements, or that the terms of new or renegotiated management agreements will be as favorable to the Company as the terms of prior agreements. In addition to the services called for under its management agreements, the Company often provides purchasing services, equipment leasing services, insurance and risk management services and other ancillary services to third-party hotel owners. On a pro forma basis, 4.4% of the Company's total revenues for the nine months ended September 30, 1996 were comprised of such services. The costs for these management services are typically subject to prospective approval by the hotel owners on an annual basis. Although the Company believes that its charges for these services are generally competitive with those provided by unrelated third 8 13 parties, there can be no assurance that third-party hotel owners will not choose to obtain such services from other providersCOMPETITION FOR MANAGEMENT AGREEMENTS The Company competes in the lodging industry with international, national, regional and local hotel management companies, some of which have greater financial or other resources than the Company. Competitive factors include relationships with hotel owners and investors, the availability of capital, financial performance, contract terms, brand name recognition, marketing support, reservation system capacity and the willingness to provide funds in connection with new management arrangements. In order for the Company to expand its business by acquiring additional management agreements, the Company may be required to offer more attractive terms to hotel owners than it has had to make in the past or to make equity investments in hotel properties. Hotel owners in many cases have been requesting lower base fees coupled with greater incentive fees or seeking capital contributions from independent hotel management companies in the form of loans or equity investmentsQUARTERLY FLUCTUATIONS IN OPERATING RESULTS The lodging industry is seasonal in nature, with the second and third calendar quarters generally accounting for a greater portion of annual revenues than the first and fourth calendar quarters. Quarterly earnings may be adversely affected by events beyond the Company's control, such as poor weather conditions, economic factors and other considerations affecting travel. In addition, the loss of one or several management agreements (which could involve the write-off of capitalized acquisition costs in addition to the loss of future revenues), the timing of achieving incremental revenues from additional hotels and the realization of a gain or loss upon the sale of a hotel also may adversely impact earnings comparisonsRISK OF INCREASING LEVERAGE; RESTRICTIVE COVENANTS Since its IPO, the Company has financed its acquisitions largely with indebtedness obtained pursuant to the Company's Acquisition Facility, and intends to finance future acquisitions with the proceeds of this Offering, the Acquisition Facility or with other credit facilities obtained by the Company in the future. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources." The credit agreement with respect to the Acquisition Facility contains restrictive covenants, including covenants limiting capital expenditures, incurrence of debt and sales of assets and requiring the Company to achieve certain financial ratios, some of which will become more restrictive over time. See "Indebtedness of the Company." The Company's existing indebtedness incurred under the Acquisition Facility, as well as its term indebtedness, is secured by mortgages on the Company's hotel properties as well as other assets of the Company. Among other consequences, the leverage of the Company and such restrictive covenants and other terms of the Company's debt instruments could impair the Company's ability to obtain additional financing in the future, to make acquisitions and to take advantage of significant business opportunities that may arise. In addition, the Company's leverage may increase its vulnerability to adverse general economic and lodging industry conditions and to increased competitive pressuresDIVIDEND POLICIES; RESTRICTIONS ON PAYMENT OF DIVIDENDS The Company has not paid any dividends on the Common Stock since the IPO and does not anticipate that it will pay any dividends in the foreseeable future. The Acquisition Facility prohibits payment of dividends or other distributions to shareholders. See "Dividend Policy." CONFLICTS OF INTEREST Milton Fine, the co-founder of the Company and its Chairman of the Board, and individuals and entities affiliated with Mr. Fine (collectively, the "Fine Family Shareholders") will beneficially own approximately 36.9% of the outstanding Common Stock following consummation of the Offering. See "Principal Shareholders." Certain of the Fine Family Shareholders also have ownership interests in 12 hotels that are managed or leased but not owned by the CompanyEach of the Fine Family Shareholders has agreed not to transfer any of its interests in any of these hotels (subject to certain permitted transfers) without first complying with a right 9 14 of first offer and a right of first refusal procedure in favor of the Company See "Certain Relationships and Related Transactions--Transactions with the Fine Family Shareholders." Except for one management agreement pursuant to which the Company waived its management fee for a period ending no later than November 30, 1998, the Company believes that its management agreements and leases for these hotels are on terms no less favorable to the Company than those that could have been obtained from unaffiliated third parties. These relationships, however, coupled with the ownership of Common Stock by the Fine Family Shareholders and representation on the Company's Board of Directors (the "Board") by certain of the Fine Family Shareholders, could give rise to potential conflicts of interest. The Company has implemented a policy requiring transactions between the Company and related parties to be approved by a majority of disinterested directors upon such disinterested directors' determination that the terms of the transaction are no less favorable to the Company than those that could have been obtained from unrelated third parties. There can be no assurance, however, that this policy will always be successful in eliminating the influence of such potential conflicts of interest. See "Management--Directors and Executive Officers." CONTROL BY PRINCIPAL SHAREHOLDERS The Fine Family Shareholders are able to exert substantial influence over the election of directors and the management and affairs of the Company and over the outcome of any corporate transactions or other matters submitted to the shareholders for approval, including mergers, consolidations and the sale of all or substantially all of the Company's assets. Affiliates of Blackstone Real Estate Advisors L.P. (collectively, "Blackstone") may also be able to exert influence over these matters. Pursuant to a stockholders agreement (the "Interstone Stockholders Agreement") between the Company and Blackstone, dated June 25, 1996, so long as Blackstone owns 25% or more of the shares of Common Stock issued to it on the date of the Interstone Stockholders Agreement, the Fine Family Shareholders have agreed that they will vote all of their shares of Common Stock for the election of a director candidate nominated by Blackstone, and Blackstone has agreed to vote all of its shares of Common Stock for the election of the director candidates nominated by the BoardSUBSTANTIAL RELIANCE ON SENIOR MANAGEMENT The Company will place substantial reliance on the lodging industry knowledge and experience and the continued services of its senior management The Company's future success and its ability to manage future growth depends in large part upon the efforts of these persons and on the Company's ability to attract and retain these key executives and other highly qualified personnelCompetition for such personnel is intense, and there can be no assurance that the Company will be successful in attracting and retaining such personnel GOVERNMENT REGULATION The Company is subject to numerous foreign and U.S. federal, state and local government laws, including those relating to the preparation and sale of food and beverages (such as health and liquor license laws), accessibility for disabled persons and general building and zoning requirements. Managers of hotels are also subject to laws governing their relationship with hotel employees, including minimum wage requirements, overtime, working conditions and work permit requirements. Compliance with, or changes in, these laws, including liquor license laws or increases in minimum wage rate requirements, reduces revenues and profits of hotels owned, leased and managed by the Company and could otherwise adversely affect the Company's operations. Although third-party hotel owners are generally responsible for all costs, expenses and liabilities incurred in connection with operating the hotels under the Company's management agreements, including compliance with government laws, the Company may be contingently liable for certain liabilities for which it does not maintain insurance, including certain employment liabilities, environmental liabilities and, in respect of properties in the United States, claims arising under the Americans with Disabilities Act. The Company also is subject to various foreign and U.S. federal, state and local environmental laws and regulations relating to the environment and the handling of hazardous substances which may impose or create significant potential environmental liabilities. Under the Company's hotel management agreements, third-party hotel owners are generally responsible for any environmental liabilities. However, under certain countries' laws, including those of the United States, the Company also may be exposed to environmental liabilities whether or not the third-party hotel owner is able to satisfy such liabilities. In addition, the Company will be subject to any environmental liabilities arising with respect to its owned hotels. 10 15 ANTI-TAKEOVER PROVISIONS The Company's Articles of Incorporation and By-Laws, and Pennsylvania law, include various provisions that could have the effect of making it more difficult for a third party to acquire control of the Company. See "Description of Capital Stock--Certain Corporate Governance Matters." In addition, the Company's Articles of Incorporation grant the Board authority to issue up to 25,000,000 shares of preferred stock having such rights, preferences and privileges as designated by the Board without shareholder approval. See "Description of Capital Stock--Preferred Stock." The rights of holders of Common Stock will be subject to, and may be adversely affected by, the rights of the holders of any shares of such preferred stock that may be issued in the futureSHARES ELIGIBLE FOR FUTURE SALE No prediction can be made as to the effect, if any, that future sales of shares, or the availability of shares for future sale, will have on the market price of the Common Stock prevailing from time to time. Sales of substantial amounts of Common Stock (including shares issuable upon the exercise of stock options), or the perception that such sales could occur, could adversely affect prevailing market prices for the Common Stock. Upon consummation of the Offering, the Company will have outstanding 34,639,296 shares of Common StockOf these shares, 18,190,946 are "restricted securities" under Rule 144 under the Securities Act of 1933, as amended (the "Securities Act"). The holders of 18,071,441 of these shares have registration rights with respect to future registrations of the Common Stock beneficially owned by them. In connection with this Offering, the Company, each of its directors and executive officers who is a holder of restricted securities, the Fine Family Shareholders and Blackstone have agreed, subject to certain exceptions, not to offer, sell, contract to sell or otherwise dispose of any such shares of Common Stock for a period of 90 days after the date of this Prospectus without the prior written consent of Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch"). Trust Leasing and Trust Management have agreed with the Company not to sell any of the Common Stock acquired in connection with the Equity Inns Transaction until June 30, 1997 and not to sell more than 50% of such Common Stock until December 31, 1997See "Principal Shareholders," "Shares Eligible for Future Sale" and "Underwriting." 11 | -0.001829 | 38.37 | 678.44 | 883.761 | 196350000 | 190.385 | False | 1996 |
| 3325 | 42.0 | 469.7 | NaN | 1173.752369 | BOSTON | 32.1500 | NaN | 46.34 | 11215.13 | False | NASDQ | False | True | Finance | Trading | Other | NaN | 469724460.0 | LPL Investment Holdings Inc | 0.381623 | 5636693.0 | Goldman Sachs & Co\nMorgan Stanley\nMerrill Lynch & Co Inc\nJP Morgan & Co Inc | 2540.27 | -56.862 | 6.0 | 0 | 14 | 3.0 | 30.00 | NaN | True | 0.0 | 0 | 4.071929 | 6.75075 | 9.001 | 57.007 | risk factors investing in our common stock involves a high degree of risk. you should carefully consider the following risk factors, as well as the other information in this prospectus, before deciding to invest in our common stock. the occurrence of any of the following risks could harm our business, financial condition, results of operations or prospects. in that case, the trading price of our common stock could decline, and you may lose all or part of your investment. risks related to our business and industrywe depend on our ability to attract and retain experienced and productive advisors. we derive a large portion of our revenues from commissions and fees generated by our advisors. our ability to attract and retain experienced and productive advisors has contributed significantly to our growth and success, and our strategic plan is premised upon continued growth in the number of our advisors. if we fail to attract new advisors or to retain and motivate our current advisors, our business may suffer. the market for experienced and productive advisors is highly competitive, and we devote significant resources to attracting and retaining the most qualified advisors. in attracting and retaining advisors, we compete directly with a variety of financial institutions such as wirehouses, regional broker-dealers, banks, insurance companies and other independent broker-dealers. if we are not successful in attracting or retaining highly qualified advisors, we may not be able to recover the expense involved in attracting and training these individuals. there can be no assurance that we will be successful in our efforts to attract and retain the advisors needed to achieve our growth objectives.our financial condition and results of operations may be adversely affected by market fluctuations and other economic factors. our financial condition and results of operations may be adversely affected by market fluctuations and other economic factors. significant downturns and volatility in equity and other financial markets have had and could continue to have an adverse effect on our financial condition and results of operations. general economic and market factors can affect our commission and fee revenue. for example, a decrease in market levels can: reduce new investments by both new and existing clients in financial products that are linked to the stock market, such as variable life insurance, variable annuities, mutual funds and managed accounts; reduce trading activity, thereby affecting our brokerage commissions; reduce the value of advisory and brokerage assets, thereby reducing asset-based fee incomeand motivate clients to withdraw funds from their accounts, reducing advisory and brokerage assets, advisory fee revenue and asset-based fee income. in addition, because certain of our expenses are fixed, our ability to reduce them over short periods of time is limited, which could negatively impact our profitability.significant interest rate changes could affect our profitability and financial condition. our revenues are exposed to interest rate risk primarily from changes in the interest rates payable to us from banks participating in our cash sweep programs. in the current low interest rate environment, our revenue from our cash sweep program has declined and may decline further due to changes in interest rates or clients moving assets out of our cash sweep program. we may also be 14 limited in the amount we can reduce interest rates payable to clients in our cash sweep program and still offer a competitive return.lack of liquidity or access to capital could impair our business and financial condition. liquidity, or ready access to funds, is essential to our business. we expend significant resources investing in our business, particularly with respect to our technology and service platforms. in addition, we must maintain certain levels of required capital. as a result, reduced levels of liquidity could have a significant negative effect on us. some potential conditions that could negatively affect our liquidity include: illiquid or volatile markets; diminished access to debt or capital marketsor unforeseen cash or capital requirements, adverse legal settlements or judgments (including, among others, risks associated with auction rate securities). the capital and credit markets continue to experience varying degrees of volatility and disruption. in some cases, the markets have exerted downward pressure on availability of liquidity and credit capacity for businesses similar to ours. without sufficient liquidity, we could be required to curtail our operations, and our business would suffer. notwithstanding the self-funding nature of our operations, we may sometimes be required to fund timing differences arising from the delayed receipt of funds associated with the settlement of transactions in securities markets. historically, these timing differences were funded either with internally generated cash flow or, if needed, with funds drawn under short-term borrowing facilities, including both committed unsecured lines of credit and uncommitted lines of credit secured by client securities. lpl financial, one of our broker-dealer subsidiaries, utilizes uncommitted lines of credit secured by client securities to fund margin loans and other client transaction-related timing differences. in the event current resources are insufficient to satisfy our needs, we may need to rely on financing sources such as bank debt. the availability of additional financing will depend on a variety of factors such as market conditions; the general availability of credit; the volume of trading activities; the overall availability of credit to the financial services industry; our credit ratings and credit capacityand the possibility that our stockholders, advisors or lenders could develop a negative perception of our long-or short-term financial prospects if the level of our business activity decreases due to a market downturn. similarly, our access to funds may be impaired if regulatory authorities or rating organizations take negative actions against us. disruptions, uncertainty or volatility in the capital and credit markets may also limit our access to capital required to operate our business. such market conditions may limit our ability to satisfy statutory capital requirements, generate commission, fee and other market-related revenue to meet liquidity needs and access the capital necessary to grow our business. as such, we may be forced to delay raising capital, issue different types of capital than we would otherwise, less effectively deploy such capital or bear an unattractive cost of capital, which could decrease our profitability and significantly reduce our financial flexibility. if the counterparties to the derivative instruments we use to hedge our interest rate risk default, we may be exposed to risks we had sought to mitigate. we use derivative instruments to hedge our interest rate risk. if our counterparties fail to honor their obligations under the derivative instruments, our hedges of the interest rate risk will be ineffective. that failure could have an adverse effect on our financial condition, results of operations and cash flows that could be material. for the names of key counterparties upon which we currently rely, see managements discussion and analysis of financial condition and results of operationsquantitative and qualitative disclosures about riskinterest rate risk.a loss of our marketing relationships with manufacturers of financial products could harm our relationship with our advisors and, in turn, their clients. we operate on an open architecture product platform with no proprietary financial products. to help our advisors meet their clients needs with suitable investment options, we have relationships with most of the industry-leading providers of financial and insurance products. we have sponsorship agreements with some manufacturers of fixed and variable annuities and mutual funds that, subject to the survival of certain terms and conditions, may be terminated upon notice. if we lose our relationships with one or more of these manufacturers, our ability to serve our advisors and our business may be materially and adversely affected. risks related to our regulatory environmentregulatory developments and our failure to comply with regulations could adversely affect our business by increasing our costs and exposure to litigation, affecting our reputation and making our business less profitable. our business is subject to extensive u.s. regulation and supervision, including securities and investment advisory services. the securities industry in the united states is subject to extensive regulation under both federal and state laws. our broker-dealer subsidiary, lpl financial, is: registered as a broker-dealer with the securities and exchange commission (sec), each of the 50states, and the district of columbia, puerto rico and the u.s.virgin islands; registered as an investment advisor with the sec; a member of financial industry regulatory authority, inc. (finra); regulated by the commodities future trading commission (cftc) with respect to the futures and commodities trading activities it conducts as an introducing brokerand a member of the nasdaq stock market and the chicago stock exchange. much of the regulation of broker-dealers has been delegated to self-regulatory organizations (sros), namely finra and the municipal securities rulemaking board (msrb). the primary regulators of lpl financial are finra, and for municipal securities, the msrb. the cftc has designated the national futures association (nfa) as lpl financials primary regulator for futures and commodities trading activities. the sec, finra, cftc, office of the comptroller of the currency (occ), various securities and futures exchanges and other u.s.governmental or regulatory authorities continuously review legislative and regulatory initiatives and may adopt new or revised laws and regulations. there can also be no assurance that other federal or state agencies will not attempt to further regulate our business. these legislative and regulatory initiatives may affect the way in which we conduct our business and may make our business model less profitable. our ability to conduct business in the jurisdictions in which we currently operate depends on our compliance with the laws, rules and regulations promulgated by federal regulatory bodies and the regulatory authorities in each of these jurisdictions. our ability to comply with all applicable laws, rules 16 and regulations is largely dependent on our establishment and maintenance of compliance, audit and reporting systems and procedures, as well as our ability to attract and retain qualified compliance, audit and risk management personnel. while we have adopted policies and procedures reasonably designed to comply with all applicable laws, rules and regulations, these systems and procedures may not be fully effective, and there can be no assurance that regulators or third parties will not raise material issues with respect to our past or future compliance with applicable regulations. our profitability could also be affected by rules and regulations that impact the business and financial communities generally and, in particular, our advisors clients, including changes to the laws governing taxation (including the classification of independent contractor status of our advisors), electronic commerce, privacy and data protection. failure to comply with new rules and regulations, including in particular, rules and regulations that may arise pursuant to the dodd-frank wall street reform and consumer protection act, could subject us to regulatory actions or litigation and it could have a material adverse effect on our business, results of operations, cash flows or financial condition. in addition, new rules and regulations could result in limitations on the lines of business we conduct, modifications to our business practices, increased capital requirements or additional costs. for example, the u.s. department of labor has issued a proposed rule that, if adopted as currently proposed, would broaden the circumstances under which we may be considered a fiduciary under section3(21) of the employee retirement income security act of 1974, as amended (erisa).we are subject to various regulatory ownership requirements, which, if not complied with, could result in the restriction of the ongoing conduct, growth or even liquidation of parts of our business. the business activities that we may conduct are limited by various regulatory agencies. our membership agreement with finra may be amended by application to include additional business activities. this application process is time-consuming and may not be successful. as a result, we may be prevented from entering new potentially profitable businesses in a timely manner, or at all. in addition, as a member of finra, we are subject to certain regulations regarding changes in control of our ownership. rule1017 of the national association of securities dealers (nasd) generally provides, among other things, that finra approval must be obtained in connection with any transaction resulting in a change in our equity ownership that results in one person or entity directly or indirectly owning or controlling 25% or more of our equity capital. similarly, the occ imposes advance approval requirements for a change of control, and control is presumed to exist if a person acquires 10% or more of our common stock. these regulatory approval processes can result in delay, increased costs and/or impose additional transaction terms in connection with a proposed change of control, such as capital contributions to the regulated entity. as a result of these regulations, our future efforts to sell shares or raise additional capital may be delayed or prohibited.we are subject to various regulatory capital requirements, which, if not complied with, could result in the restriction of the ongoing conduct, growth, or even liquidation of parts of our business. the sec, finra, cftc, occ and nfa have extensive rules and regulations with respect to capital requirements. as a registered broker-dealer, lpl financial is subject to rule15c3-1 (uniform net capital rule) under the securities exchange act of 1934, as amended (the exchange act), and related sro requirements. the cftc and nfa also impose net capital requirements. the uniform net capital rule specifies minimum capital requirements that are intended to ensure the general soundness and liquidity of broker-dealers. because we are not a registered broker-dealer, we are not subject to the uniform net capital rule. however, our ability to withdraw capital from our broker-dealer subsidiaries could be restricted, which in turn could limit our ability to repay debt and redeem or purchase shares of our outstanding stock. a large operating loss or charge against net capital could adversely affect our ability to expand or even maintain our present levels of business. failure to comply with erisa regulations could result in penalties against us. we are subject to erisa and sections4975(c)(1)(a), (b), (c)and (d)of the internal revenue code of 1986, as amended (the internal revenue code), and to regulations promulgated thereunder, insofar as we act as a fiduciary under erisa with respect to benefit plan clients or otherwise deal with benefit plan clients. erisa and applicable provisions of the internal revenue code impose duties on persons who are fiduciaries under erisa, prohibit specified transactions involving erisa plan clients (including, without limitation, employee benefit plans (as defined in section3(3) of erisa), individual retirement accounts and keogh plans) and impose monetary penalties for violations of these prohibitions. our failure to comply with these requirements could result in significant penalties against us that could have a material adverse effect on our business (or, in a worst case, severely limit the extent to which we could act as fiduciaries for any plans under erisa). risks related to our competitionwe operate in an intensely competitive industry, which could cause us to lose advisors and their assets, thereby reducing our revenues and net income. we are subject to competition in all aspects of our business, including competition for our advisors and their clients, from: asset management firms; commercial banks and thrift institutions; insurance companies; other clearing/custodial technology companiesand brokerage and investment banking firms. many of our competitors have substantially greater resources than we do and may offer a broader range of services, including financial products, across more markets. some operate in a different regulatory environment than we do which may give them certain competitive advantages in the services they offer. for example, certain of our competitors only provide clearing services and consequently would not have any supervision or oversight liability relating to actions of their financial advisors. we believe that competition within our industry will intensify as a result of consolidation and acquisition activity and because new competitors face few barriers to entry. if we fail to continue to attract highly qualified advisors or advisors licensed with us leave us to pursue other opportunities, or if current or potential clients of our advisors decide to use one of our competitors, we could face a significant decline in market share, commission and fee revenues and net income. if we are required to increase our payout of commissions and fees to our advisors in order to remain competitive, our net income could be significantly reduced.poor service or performance of the financial products that we offer or competitive pressures on pricing of such services or products may cause clients of our advisors to withdraw their assets on short notice. clients of our advisors control their assets under management with us. poor service or performance of the financial products that we offer or competitive pressures on pricing of such services or products may result in the loss of accounts. in addition, we must monitor the pricing of our services and financial products in relation to competitors and periodically may need to adjust commission and fee rates, interest rates on deposits and margin loans and other fee structures to remain competitive. competition from other financial services firms, such as reduced commissions to attract clients or trading volume or higher deposit rates to attract client cash balances, could adversely impact our business. the decrease in revenue that could result from such an event could have a material adverse effect on our business. we face competition in attracting and retaining key talent. our success and future growth depends upon our ability to attract and retain qualified employees. there is significant competition for qualified employees in the broker-dealer industry. we may not be able to retain our existing employees or fill new positions or vacancies created by expansion or turnover. the loss or unavailability of these individuals could have a material adverse effect on our business. moreover, our success depends upon the continued services of our key senior management personnel, including our executive officers and senior managers. the loss of one or more of our key senior management personnel, and the failure to recruit a suitable replacement or replacements, could have a material adverse effect on our business. risks related to our debtour indebtedness could adversely affect our financial health and may limit our ability to use debt to fund future capital needs. at september30, 2010, we had total indebtedness of $1.4billion. our level of indebtedness could increase our vulnerability to general adverse economic and industry conditions. it could also require us to dedicate a substantial portion of our cash flow from operations to payments on our indebtedness, thereby reducing the availability of our cash flow to fund working capital, capital expenditures and other general corporate purposes. in addition, our level of indebtedness may limit our flexibility in planning for changes in our business and the industry in which we operate, place us at a competitive disadvantage compared to our competitors that have less debt and limit our ability to borrow additional funds. our ability to make scheduled payments on or to refinance indebtedness obligations depends on our financial condition and operating performance, which are subject to prevailing economic and competitive conditions and to certain financial, business and other factors beyond our control. we may not be able to maintain a level of cash flows from operating activities sufficient to permit us to pay the principal, premium, if any, and interest on our indebtedness. in addition, as discussed above, we are limited in the amount of capital that we can draw from our broker-dealer subsidiaries. if our cash flows and capital resources are insufficient to fund our debt service obligations, we could face substantial liquidity problems and could be forced to sell assets, seek additional capital or seek to restructure or refinance our indebtedness. these alternative measures may not be successful or feasible. our third amended and restated credit agreement (senior secured credit agreement) restricts our ability to sell assets. even if we could consummate those sales, the proceeds that we realize from them may not be adequate to meet any debt service obligations then due. furthermore, if an event of default were to occur with respect to our senior secured credit agreement or other indebtedness, our creditors could, among other things, accelerate the maturity of our indebtedness. in addition, as a result of reduced operating performance or weaker than expected financial condition, rating agencies could downgrade our senior unsecured subordinated notes, which would adversely affect the value of shares of our common stock. our senior secured credit agreement permits us to incur additional indebtedness. although our senior secured credit agreement contains restrictions on the incurrence of additional indebtedness, these restrictions are subject to a number of significant qualifications and exceptions, and the indebtedness incurred in compliance with these restrictions could be substantial. also, these restrictions do not prevent us from incurring obligations that do not constitute indebtedness as defined in our senior secured credit agreement. to the extent new debt or other obligations are added to our currently anticipated debt levels, the substantial indebtedness risks described above would increase. restrictions under certain of our indebtedness may prevent us from taking actions that we believe would be in the best interest of our business. certain of our indebtedness contain customary restrictions on our activities, including covenants that may restrict us from: incurring additional indebtedness or issuing disqualified stock or preferred stock; paying dividends on, redeeming or repurchasing our capital stock; making investments or acquisitions; creating liens; selling assets; restricting dividends or other payments to us; guaranteeing indebtedness; engaging in transactions with affiliatesand consolidating, merging or transferring all or substantially all of our assets. we are also required to meet specified financial ratios. these restrictions may prevent us from taking actions that we believe would be in the best interest of our business. our ability to comply with these restrictive covenants will depend on our future performance, which may be affected by events beyond our control. if we violate any of these covenants and are unable to obtain waivers, we would be in default under the applicable agreements and payment of the indebtedness could be accelerated. the acceleration of our indebtedness under one agreement may permit acceleration of indebtedness under other agreements that contain cross-default or cross-acceleration provisions. if our indebtedness is accelerated, we may not be able to repay that indebtedness or borrow sufficient funds to refinance it. even if we are able to obtain new financing, it may not be on commercially reasonable terms or on terms that are acceptable to us. if our indebtedness is in default for any reason, our business could be materially and adversely affected. in addition, complying with these covenants may also cause us to take actions that are not favorable to holders of the common stock and may make it more difficult for us to successfully execute our business strategy and compete against companies that are not subject to such restrictions.provisions of our senior secured credit agreement could discourage an acquisition of us by a third party. certain provisions of our senior secured credit agreement could make it more difficult or more expensive for a third party to acquire us, and any of our future debt agreements may contain similar provisions. upon the occurrence of certain transactions constituting a change of control, all indebtedness under our senior secured credit agreement may be accelerated and become due and payable. a potential acquirer may not have sufficient financial resources to purchase our outstanding indebtedness in connection with a change of control. risks related to our technologywe rely on technology in our business, and technology and execution failures could subject us to losses, litigation and regulatory actions. our business relies extensively on electronic data processing and communications systems. in addition to better serving our advisors and clients, the effective use of technology increases efficiency and enables firms like ours to reduce costs. our continued success will depend, in part, upon: our ability to successfully maintain and upgrade the capability of our systems; 20 our ability to address the needs of our advisors and their clients by using technology to provide products and services that satisfy their demandsand our ability to retain skilled information technology employees. failure of our systems, which could result from events beyond our control, or an inability to effectively upgrade those systems or implement new technology-driven products or services, could result in financial losses, liability to clients and damage to our reputation. our operations rely on the secure processing, storage and transmission of confidential and other information in our computer systems and networks. although we take protective measures and endeavor to modify them as circumstances warrant, the computer systems, software and networks may be vulnerable to unauthorized access, computer viruses or other malicious code and other events that could have a security impact. if one or more of these events occur, this could jeopardize our own, our advisors or their clients or counterparties confidential and other information processed, stored in and transmitted through our computer systems and networks, or otherwise cause interruptions or malfunctions in our own, our advisors or their clients, our counterparties or third parties operations. we may be required to expend significant additional resources to modify our protective measures, to investigate and remediate vulnerabilities or other exposures or to make required notifications, and we may be subject to litigation and financial losses that are either not insured or are not fully covered through any insurance we maintain.the securities settlement process exposes us to risks that may expose our advisors and us to adverse movements in price. lpl financial, one of our subsidiaries, provides clearing services and trade processing for our advisors and their clients and certain financial institutions. broker-dealers that clear their own trades are subject to substantially more regulatory requirements than brokers that outsource these functions to third-party providers. errors in performing clearing functions, including clerical, technological and other errors related to the handling of funds and securities held by us on behalf of clients, could lead to censures, fines or other sanctions imposed by applicable regulatory authorities as well as losses and liability in related lawsuits and proceedings brought by our advisors clients and others. any unsettled securities transactions or wrongly executed transactions may expose our advisors and us to adverse movements in the prices of such securities.our networks may be vulnerable to security risks. the secure transmission of confidential information over public networks is a critical element of our operations. as part of our normal operations, we maintain and transmit confidential information about clients of our advisors as well as proprietary information relating to our business operations. our application service provider systems maintain and process confidential data on behalf of advisors and their clients, some of which is critical to our advisors business operations. if our application service provider systems are disrupted or fail for any reason, or if our systems or facilities are infiltrated or damaged by unauthorized persons, our advisors could experience data loss, financial loss, harm to reputation and significant business interruption. if such a disruption or failure occurs, we may be exposed to unexpected liability, advisors may withdraw their assets, our reputation may be tarnished and there could be a material adverse effect on our business. our networks may be vulnerable to unauthorized access, computer viruses and other security problems in the future. we rely on our advisors to comply with our policies and procedures to safeguard confidential data. the failure of our advisors to comply with such policies and procedures could result in the loss or wrongful use of their clients confidential information or other sensitive information. in addition, even if we and our advisors comply with our policies and procedures, persons who circumvent security measures could wrongfully use our confidential information or clients 21 confidential information or cause interruptions or malfunctions in our operations. such loss or use could, among other things: seriously damage our reputation; allow competitors access to our proprietary business information; subject us to liability for a failure to safeguard client data; result in the termination of relationships with our advisors; subject us to regulatory sanctions or burdens, based on the authority of the sec and finra to enforce regulations regarding business continuity planningand require significant capital and operating expenditures to investigate and remediate the breach.failure to maintain technological capabilities, flaws in existing technology, difficulties in upgrading our technology platform or the introduction of a competitive platform could have a material adverse effect on our business. we depend on highly specialized and, in many cases, proprietary technology to support our business functions, including among others: securities trading and custody; portfolio management; customer service; accounting and internal financial processes and controlsand regulatory compliance and reporting. in addition, our continued success depends on our ability to effectively adopt new or adapt existing technologies to meet client, industry and regulatory demands. we might be required to make significant capital expenditures to maintain competitive technology. for example, we believe that our technology platform, particularly our branchnet system, is one of our competitive strengths, and our future success will depend in part on our ability to anticipate and adapt to technological advancements required to meet the changing demands of our advisors. the emergence of new industry standards and practices could render our existing systems obsolete or uncompetitive. any upgrades or expansions may require significant expenditures of funds and may also cause us to suffer system degradations, outages and failures. there cannot be any assurance that we will have sufficient funds to adequately update and expand our networks, nor can there be any assurance that any upgrade or expansion attempts will be successful and accepted by our current and prospective advisors. if our technology systems were to fail and we were unable to recover in a timely way, we would be unable to fulfill critical business functions, which could lead to a loss of advisors and could harm our reputation. a technological breakdown could also interfere with our ability to comply with financial reporting | -0.015595 | 14.61 | 1197.96 | 3646.167 | 469724460 | 3113.486 | False | 2010 |
| 3326 | NaN | 16.3 | NaN | NaN | AUSTIN | NaN | 0.021 | NaN | 13062.91 | False | AMEX | False | True | Other | Construction | Other | NaN | NaN | Wilson Holdings Inc | NaN | NaN | Capital Growth Financial LLC | 2525.09 | NaN | NaN | 1 | 1 | NaN | 3.25 | NaN | False | NaN | 0 | 3.001000 | 3.00100 | 3.001 | 3.001 | risk factors an investment in our common stock involves a high degree of risk and many uncertainties. you should carefully consider the specific factors listed below before purchaser our securities. if one or more of the possibilities described as risks below actually occur, our operating results and financial condition would likely suffer and the trading price of our common stock could fall, causing you to lose some or all of your investment in the shares of common stock you purchase. the following is a description of what we consider our key challenges and material risks. risks related to our businessour current operating business has a limited operating history and revenues. in october 2005, we acquired wilson family communities, inc., or wfc, which has a limited operating history. accordingly, our business is subject to substantial risks inherent in the commencement of a new business enterprise in an intensely competitive industry. the business of wfc was conducted, beginning in 2002, by athena equity partners-hays, l.p., or athena, to engage in land acquisition and development and, beginning in 2005, to provide homebuilder services. prior to its merger with wfc, athena did not generate significant revenues, and, through march 31, 2007, our company has generated revenues of only approximately $8.8 million and has incurred cumulative net losses of approximately $17.0 million. there can be no assurance that we will be able to successfully acquire, develop and/or market land, develop and market our homebuilder services, commence our homebuilding activities, generate revenues, or ever operate on a profitable basis. we currently have only one active homebuilder for our homebuilder services and are evaluating whether to continue providing services to homebuilders. any investment in our company should be considered a high-risk investment because the investor will be placing funds at risk in a company with unknown costs, expenses, competition, and other problems to which new ventures are often subject. investors should not invest in our company unless they can afford to lose their entire investment.we have incurred a significant amount of debt, but will require additional substantial capital to continue to pursue our operating strategy. we had approximately $4.4 million in cash and cash equivalents at march 31, 2007. we plan to commit several million dollars in cash to exercise option rights to purchase land, develop land and guarantee certain payments regarding the development of optioned land over the next year. we have secured lines of credit totaling approximately $25.5 million. approximately $1.6 million was drawn against these lines of credit as of march 31, 2007, which will be repaid as finished lots and completed homes are sold. approximately $328,000 of the notes payable relate to variable interest entities, or vies, that had drawn on the lines of credit, which we have guaranteed, to build homes that will be repaid as the completed homes are sold. we anticipate investing approximately $23 million for purchase of land, installment payments, options fees and development costs over the next twelve months. this amount includes costs for development of land, such as installation of water and wastewater infrastructure, streets and common areas. we intend to purchase or obtain options to purchase additional acreage for development and additional finished lots for sale. we have issued and sold an aggregate of $16.75 million in principal amount of convertible promissory notes since december 2005. these notes bear interest at a fixed rate of 5.0% per annum, with the principal amount of such notes convertible into shares of our common stock at the rate of one share per $2.00 of principal, which conversion rate is subject to proportionate adjustment for stock splits, stock dividends and recapitalizations as well as a ratchet adjustment which will apply if we sell shares of our common stock in the future at a price per share of less than $2.00, provided that such conversion rate may not be reduced below a rate of one share of common stock for each $1.00 of note principal. our growth plans will require substantial amounts of cash for earnest money deposits, land purchases, development costs and interest payments, and to provide financing or surety services to our homebuilder clients. until we begin to sell an adequate number of lots and services to cover our monthly operating expenses, 8 costs associated with our sales, marketing and general and administrative activities will deplete cash. our articles of incorporation contain no limits on the amount of indebtedness we may incur.we are seeking additional credit lines to finance land purchases and development costs. through march 31, 2007, we have closed on four major land development projects that used $15.7 million in cash to exercise land purchase options, develop and entitle land and acquire entitled acreage. we anticipate purchasing and committing to various agreements to purchase land that could have performance clauses requiring several million dollars in cash and borrowings. the majority of our expenditures in the past have been for inventory, consisting of land, land development and land options totaling over $31 million as of march 31, 2007. to secure additional inventory, we will be required to put up earnest money deposits, make cash down payments, acquire acreage tracts and pay for certain land development activities costing several million dollars. this amount includes the development of land, including costs for the installation of water, sewage, streets and common areas. we intend to continue our growth plan and expect to purchase or obtain options to purchase additional acreage for development and additional finished lots to provide ample supplies for our homebuilder customers. we intend to use debt and may utilize joint venture financing as well as cash generated from lot and land sales to finance these activities. in the normal course of business, we enter into various land purchase option agreements that require earnest money deposits. in order for us to start or continue the development process, we may incur development costs before we exercise an option agreement. we currently have approximately $451,000 in capitalized development costs, earnest money and deposits outstanding of which the entire amount would be forfeited and expensed if we were to cancel all of these agreements. should our financing efforts be insufficient to execute our business plan, we may be required to seek additional sources of capital, which may include partnering with one or more established operating companies that are interested in our emerging business or entering into joint venture arrangements for the development of certain of our properties. however, if we were required to resort to partnering or joint venture relationships as a means to raise needed capital or reduce our cost burden, we likely will be required to cede some control over our activities and negotiate our business plan with our business or joint venture partners.we are vulnerable to concentration risks because our initial operations have been limited to the central texas area. our real estate activities have to date been conducted almost entirely in the central texas region, which we define as encompassing the austin metropolitan statistical area, or austin msa, and the san antonio metropolitan statistical area, or san antonio msa. this geographic concentration, combined with a limited number of projects that we plan to pursue, make our operations more vulnerable to local economic downturns and adverse project-specific risks than those of larger, more diversified companies. the performance of the central texas economy will affect our sales and, consequently, the underlying values of our properties. for example, the economy in the austin msa is heavily influenced by conditions in the technology industries. during periods of weakness or instability in technology industries, we may experience reduced sales, particularly with respect to high-end properties, which can significantly affect our financial condition and results of operations. the san antonio msa economy is dependent on the service industry (including tourism), government/military and businesses specializing in international trade. to the extent there is a significant reduction in tourism or in staffing levels of military or other government employers in the san antonio msa, we would expect to see reduced sales of lower priced homes due to a likely reduction in lower paying tourism- and government-related jobs.fluctuations in market conditions may affect our ability to sell our land at expected prices, if at all, which could adversely affect our revenues, earnings and cash flows. we are subject to the potential for significant fluctuations in the market value of our land inventories. there is a lag between the time we acquire control of undeveloped land and the time that we can improve that 9 land for sale to home builders. this lag time varies from site to site as it is impossible to determine in advance the length of time it will take to obtain government approvals and permits. the risk of owning undeveloped land can be substantial as the market value of undeveloped land can fluctuate significantly as a result of changing economic and market conditions. inventory carrying costs can be significant and can result in losses in a poorly performing development or market. material write-downs of the estimated value of our land inventories could occur if market conditions deteriorate or if we purchase land at higher prices during stronger economic periods and the value of those land inventories subsequently declines during weaker economic periods. we could also be forced to sell land or lots for prices that generate lower profit than we anticipate, and may not be able to dispose of an investment in a timely manner when we find dispositions advantageous or necessary. furthermore, a decline in the market vale of our land inventories may give rise to a breach of financial covenants contained in our credit facilities, which could cause a default under one or more of those credit facilities.our operations are subject to an intensive regulatory approval process, including governmental and environmental regulation, which may delay, increase the cost of, prohibit or severely restrict our development projects and reduce our revenues and cash flows. we are subject to extensive and complex laws and regulations that affect the land development process. before we can develop a property, we must obtain a variety of approvals from local, state and federal governmental agencies with respect to such matters as zoning, density, parking, subdivision, site planning and environmental issues. certain of these approvals are discretionary by nature. because certain government agencies and special interest groups have in the past expressed concerns about development plans in or near the central texas region, our ability to develop these properties and realize future income from them could be delayed, reduced, made more expensive or prevented altogether. real estate development is subject to state and federal regulations as well as possible interruption or termination because of environmental considerations, including, without limitation, air and water quality and the protection of endangered species and their habitats. we are making and will continue to make expenditures and other accommodations with respect to our real estate development for the protection of the environment. emphasis on environmental matters may result in additional costs to us in the future or a reduction in the amount of acreage that we can use for development or sales activities.we may be subject to risks as a result of our entry into joint ventures. to the extent that we undertake joint ventures to develop properties or conduct our business, we may be liable for all obligations incurred by the joint venture, even though such obligations may not have been incurred by us, and our share of the potential profits from such joint venture may not be commensurate with our liability. moreover, we will be exposed to greater risks in joint ventures should our co-venturers financial condition become impaired during the term of the joint venture, as creditors will increasingly look to our company to support the operations and fund the obligations of the joint venture.our operations are subject to weather-related risks. our land development operations and the demand for our homebuilder services may be adversely affected from time to time by weather conditions that damage property. the central texas region is prone to tornados, hurricanes entering from the gulf of mexico, floods, hail storms, severe heat and droughts. we maintain only limited insurance coverage to protect the value of our assets against natural disasters. additionally, weather conditions can delay development and construction projects by weeks or months which could delay and decrease our anticipated revenues. to the extent we encounter significant weather-related delays, our business would suffer.the availability of water could delay or increase the cost of land development and adversely affect our future operating results. the availability of water is becoming an increasingly difficult issue in the central texas region and other areas of the southwestern united states. many jurisdictions are now requiring that builders provide detailed information regarding the source of water for any new community that they intend to develop. 10 similarly, the availability of treatment facilities for sanitary sewage is a growing concern. many urban areas have insufficient resources to meet the demand for waste-water and sanitary sewage treatment. to the extent we are unable to find satisfactory solutions to these issues with respect to future development projects, our operations could be adversely affected.we are subject to risks related to environmental damages. we may be required to undertake expensive and time-consuming clean-up or remediation efforts in the event that we encounter environmental hazards on the lots we own, even if we were not originally responsible for or aware of such hazards. in the event we are required to undertake any such remediation activities, our business could suffer.we are at risk of loss for loans or advances to our customers. to the extent we offer surety or financing to our homebuilder customers, we could suffer losses if the funds advanced are not used for their intended purposes and we are forced to exercise legal remedies or incur expenses to recoup our collateral. although we closely monitor the activities for which the money is intended, it is possible for the funds to be wasted or misappropriated. we do not believe we are required to obtain any license to provide these loans or advances, nor are we limited by our charter on the amount of surety or financing we can offer, but regulatory changes could require that we do so in the future.our president and chief executive officer is subject to a non-compete agreement that limits the activities in which we may engage until june 2007. clark n. wilson, our president and chief executive officer, served as the president and chief executive officer of clark wilson homes, inc., a subsidiary of capital pacific holdings, from 1992 to 2002. pursuant to an agreement that was executed in connection with the sale of clark wilson homes to j.m. peters company in 1994, mr.wilson agreed not to engage in the businesses of acquisition, ownership, development, construction or sale of dwelling units in certain portions of the united states in which we plan to do business, including the central texas region, as well as in any other county in the united states in which j.m. peters company conducts business. the stated term of this covenant not-to-compete is five years, expiring in june 2007, for certain enumerated counties in texas, including the counties in and around, austin, dallas, houston and san antonio, texas. the covenant not to compete relates to the business of building homes and not the purchase and sale of real estate as contemplated by us. it is our opinion that our current activities do not violate the terms of the covenant because we do not currently and we do not intend to engage in homebuilding activities until after the covenant terminates in june 2007.we are a small company and have a correspondingly small financial and accounting organization. being a public company may strain our resources, divert managements attention and affect our ability to attract and retain qualified directors. we are a small company with a finance and accounting organization that we believe is of appropriate size to support our current operations; however, the rigorous demands of being a public reporting company may lead to a determination that our finance and accounting group is undersized. as a public company, we are subject to the reporting requirements of the securities exchange act of 1934 and the sarbanes-oxley act of 2002. the requirements of these laws and the rules and regulations promulgated thereunder entail significant accounting, legal and financial compliance costs, and have made, and will continue to make, some activities more difficult, time consuming or costly and may place significant strain on our personnel, systems and resources. the securities exchange act requires, among other things, that we maintain effective disclosure controls and procedures and internal control over financial reporting. in order to maintain and improve the effectiveness of our disclosure controls and procedures and internal control over financial reporting, significant resources and management oversight are required. as a result, managements attention may be diverted from other business concerns, which could have a material adverse effect on our business, financial condition and results of operations. 11 these rules and regulations also have made it more difficult and more expensive for us to maintain director and officer liability insurance, and in the future we may be required to accept reduced coverage or incur substantially higher costs to maintain such coverage. if we are unable to maintain adequate director and officer insurance, our ability to recruit and retain qualified officers and directors, especially those directors who may be deemed independent, will be significantly curtailed.we depend on our key personnel to manage our business effectively. we believe our future success will depend in large part upon our ability to attract and retain highly skilled managerial and sales and marketing personnel. in particular, due to the relatively early stage of our business, we believe that our future success is highly dependent on clark n. wilson, our chief executive officer and the founder of wfc, to provide the necessary leadership to execute our growth plans. although we intend to acquire a key-man life insurance policy for mr.wilson, the loss of the services of any of our key employees, the inability to attract or retain qualified personnel in the future or delays in hiring required personnel, and in particular sales personnel, could impede our ability to expand our sales and marketing activities as desired, and negatively impact our profitability.we have borrowed money at floating interest rates and if interest rates were to significantly increase, our financial results could suffer. we have borrowed approximately $4.8 million at interest rates of prime plus 0.50% to 2.00% that adjust in relation to the prime rate. if the prime rate were to significantly increase, we will be required to pay additional amounts in interest under these notes and line of credit and our financial results could suffer.we are vulnerable to concentration risks because we intend to focus on the residential rather than commercial market. we intend to focus on residential rather than commercial properties. economic shifts affect residential and commercial property markets, and thus our business, in different ways. a developer with diversified projects in both sectors may be better able to survive a downturn in the residential market if the commercial market remains strong. our focus on the residential sector can make us more vulnerable than a diversified developer.our growth strategy to expand into new geographic areas poses risks. we may expand our business into new geographic areas outside of the central texas region. we will face additional risks if we expand our operations in geographic areas or climates in which we do not have experience, including: adjusting our land development methods to different geographies and climates; obtaining necessary entitlements and permits under unfamiliar regulatory regimes; attracting potential customers in a market in which we do not have significant experience; and the cost of hiring new employees and increased infrastructure costs. we may not be able to successfully manage the risks of such an expansion, which could have a material adverse effect on our revenues, earnings, cash flows and financial condition.if we are unable to generate sufficient cash from operations or secure additional borrowings, we may find it necessary to curtail our development activities. we anticipate that we will need at least $23 million to fund our acquisition and development expenditures for the next twelve months. our performance continues to be substantially dependent on future cash flows from real estate financing and sales and there can be no assurance that we will generate sufficient cash flow or otherwise obtain sufficient funds to meet the expected development plans for our current and 12 future properties. if we are unsuccessful in obtaining adequate loans or in generating positive cash flows, we could be forced to: abandon some of our development activities, including the development of sub-divisions and entitling of land for development; forfeit option fees and deposits; default on loans; violate covenants with our current lenders and convertible note holders thereby putting us in default; and possibly be forced to liquidate a substantial portion of our asset holdings at unfavorable prices.our results of operations and financial condition are greatly affected by the performance of the real estate industry. our real estate activities are subject to numerous factors beyond our control, including local real estate market conditions, substantial existing and potential competition, general national, regional and local economic conditions, fluctuations in interest rates and mortgage availability and changes in demographic and environmental conditions. real estate markets have historically been subject to strong periodic cycles driven by numerous factors beyond the control of market participants. real estate investments often cannot easily be converted into cash and market values may be adversely affected by these economic circumstances, market fundamentals, competition and demographic conditions. because of the effect these factors have on real estate values, it is difficult to predict with certainty the level of future sales or sales prices that will be realized for individual assets. our real estate operations are also dependent upon the availability and cost of mortgage financing for potential customers, to the extent they finance their purchases, and for buyers of the potential customers existing residences.risks related to investment in our securities there is currently a limited market for our common stock. we have limited trading volume which causes significant stock price fluctuation. any trading market that develops in our common stock may be highly illiquid and may not reflect the underlying value of our net assets or business prospects. our common stock has been traded on the otc bulletin board.we have been approved to have our common stock quoted on the american stock exchange beginning may 15, 2007. however, there is currently only a limited market for our common stock and there can be no assurance that an improved market will ever develop or be sustained. any trading market that does develop may be volatile, and significant competition to sell our common stock in any such trading market may exist, which could negatively affect the price of our common stock, including shares of our common stock issuable upon conversion of our outstanding convertible promissory notes. prior to this offering, we have a minimal number of shares that are freely tradable and therefore our stock price fluctuates significantly based on trades of very small volume. as a result, the value of our common stock may decrease. additionally, if a trading market does develop, such market may be highly illiquid, and our common stock may trade at a price that does not accurately reflect the underlying value of our net assets or business prospects. investors are cautioned not to rely on the possibility that an active trading market may develop or on the prices at which our stock may trade in any market that does develop in making an investment decision.our company is a holding company, and the obligations of our company are subordinate to those of our operating subsidiary. our company is a holding company with no material assets other than our equity interest in our wholly owned subsidiary, wilson family communities, or wfc. wfc conducts substantially all of our operations and directly owns substantially all of our assets. the holding company structure places any obligations of wilson holdings subordinate to those of our operating subsidiary, wfc. therefore, in the event of a liquidation, creditors of wfc would be repaid prior to any distribution to the stockholders of wilson holdings. after the repayment of all obligations incurred by wfc and the repayment of all obligations of wilson holdings, any remaining assets could then be distributed to wilson holdings as the holder of all shares of common stock of wfc and subsequently would be distributed among the holders of our common stock. our largest stockholder, who is also our president and chief executive officer, will continue to control our company. clark n. wilson, our president and chief executive officer, owns or controls approximately 75% of the issued and outstanding shares of our common stock. upon completion of this offering, mr.wilson will continue to own or control approximately 59% of the issued and outstanding shares of our common stock. this ownership position will provide mr.wilson with the voting power to significantly influence the election of all members of our board of directors and, thereby, to exert substantial control over all corporate actions and decisions for an indefinite period.we issued $16.75 million in convertible notes and if these notes are converted into shares of common stock, or if the warrants issued in conjunction with such notes are exercised, our stockholders would suffer substantial dilution. in december 2005 and september 2006, we issued convertible promissory notes which may be converted, at the election of the holders of the notes, into shares of our common stock at a conversion price of $2.00 per share. in conjunction with these note financings, we also issued warrants to the purchasers which have vested and to the placement agent evidencing the right to purchase an aggregate of 1,157,187 shares of our common stock at an exercise price of $2.00 per share. while the holders of these notes and warrants have not indicated to us that they plan to convert their notes into, or exercise their warrants for, shares of our common stock, in the event they elect to do so we would be required to issue up to 8,375,000 additional shares of our common stock in conversion of the notes and 1,157,187 shares of our common stock upon exercise of the warrants, which would be dilutive to our existing stockholders. each convertible note is convertible into shares of our common stock at the option of the holder. the conversion price is subject to adjustment for stock splits, reverse stock splits, recapitalizations and similar corporate actions. a ratchet adjustment in the conversion price, and the corresponding rate at which the convertible notes may be converted into shares of our common stock, also is triggered upon the issuance of certain equity securities or equity-linked securities with a conversion price, exercise price or share price of less than $2.00 per share, provided, that the conversion price cannot be lower than $1.00 per share.future sales or the potential for sale of a substantial number of shares of our common stock could cause the trading price of our common stock to decline and could impair our ability to raise capital through subsequent equity offerings. sales of a substantial number of shares of our common stock in the public markets, or the perception that these sales may occur, could cause the market price of our stock to decline and could materially impair our ability to raise capital through the sale of additional equity securities. for example, the grant of a large number of stock options or other securities under an equity incentive plan or the sale of our equity securities in private placement transactions at a discount from market value could adversely affect the market price of our common stock.we have anti-takeover provisions that could discourage, delay or prevent our acquisition. provisions of our articles of incorporation and bylaws could have the effect of discouraging, delaying or preventing a merger or acquisition that a stockholder may consider favorable. our authorized but unissued shares of common stock are available for our board to issue without stockholder approval. we may use these additional shares for a variety of corporate purposes, including future public offerings to raise additional capital, corporate acquisitions and employee benefit plans. the existence of our authorized but unissued shares of common stock could render it more difficult or discourage an attempt to obtain control of us by means of a proxy context, tender offer, merger or other transaction. in the future, we may elect to amend our charter to provide for authorized but unissued shares of preferred stock that would be issuable at the discretion of the board of directors. we can amend and restate our charter by action of the board of directors and the written consent of a majority of stockholders. we may become subject to nevadas control share acquisition act (nevada revised statutes 78.378 -78.3793), which prohibits an acquirer, under certain circumstances, from voting shares of a corporations stock after crossing specific threshold ownership percentages, unless the acquirer obtains the approval of the issuing corporations stockholders. the first such threshold is the acquisition of at least one-fifth but less that one-third of the outstanding voting power. wilson holdings may become subject to nevadas control share acquisition 14 act if it has 200 or more stockholders of record at least 100 of whom are residents of the state of nevada and does business in the state of nevada directly or through an affiliated corporation. currently, we do not conduct business in the state of nevada directly or through an affiliated corporation. as a nevada corporation, we also are subject to nevadas combination with interested stockholders statute (nevada revised statutes 78.411 - 78.444) which prohibits an interested stockholder from entering into a combination with the corporation, unless certain conditions are met. an interested stockholder is a person who, together with affiliates and associates, beneficially owns (or within the prior three years, did beneficially own) 10 percent or more of the corporations voting stock. clark n. wilson, our president and chief executive officer, also owns approximately 75% of the issued and outstanding shares of our common stock and will own approximately 59% of our common stock after the offering. all of these factors may decrease the likelihood that we would be, or the perception that we can be, acquired, which may depress the market price of our common stock. | NaN | 21.69 | 1482.37 | NaN | 16250000 | NaN | False | 2007 |
| 3327 | 1.0 | 104.0 | NaN | 282.227979 | FT LAUDERDALE | 8.0000 | NaN | 32.63 | 8937.36 | False | NYSE | False | False | Other | Business Services | Other | NaN | NaN | NationsRent Inc | 0.630254 | 1430000.0 | Bear Stearns & Co Inc | 1930.99 | 12.654 | NaN | 0 | 28 | NaN | 8.00 | NaN | False | NaN | 0 | 6.476714 | 8.75000 | 8.750 | 181.348 | RISK FACTORS An investment in the shares of Common Stock offered hereby involves a high degree of risk. In addition to the other information contained in this Prospectus, prospective investors should consider the following factors carefully in evaluating an investment in the Common Stock offered hereby. This Prospectus contains "forward-looking statements" relating to, without limitation, future economic performance, plans and objectives of management for future operations, and projections of revenue and other financial items that are based on the beliefs of, assumptions made by and information currently available to the Company's management. The words "expect," "estimate," "anticipate," "believe," "intend," "plan" and similar expressions and variations thereof are intended to identify forward-looking statements. The cautionary statements set forth in this "Risk Factors" section and elsewhere in this Prospectus identify important factors with respect to such forward-looking statements, including certain risks and uncertainties, that could cause actual results to differ materially from those expressed in or implied by such forward-looking statements.LIMITED OPERATING HISTORY The Company was formed in August 1997 and commenced operations in September 1997 with its acquisition of Sam's Equipment Rental, Inc. and Gabriel Trailer Manufacturing Company, Inc. (collectively, "Sam's"). Accordingly, the Company has only a limited operating history upon which an evaluation of the Company, its growth strategy and its prospects can be based. The Company's prospects must be evaluated in light of the risks, expenses and difficulties frequently encountered by companies in the early stages of development. Although theCompany has experienced growth in revenue and net income recently, there can be no assurance that growth or profitability can or will be sustained or that the Company's strategy of building a network of nationally branded equipment rental locations will lead to growth or profitability. ACQUISITION AND INTEGRATION RISKS Since its inception in August 1997, the Company has acquired 16 equipment rental businesses operating 65 locations in nine states. The Company intends to continue this rapid growth by continuing to make acquisitions, opening new locations and converting acquired locations to the Company's format. There can be no assurance that the Company will be able to identify acquisition candidates or suitable new locations or obtain financing for acquisitions or internal expansion on satisfactory terms, or at all. In the event that suitable acquisition candidates are not identifiable or to the extent that acquisitions are prohibitively costly, the Company may be forced to alter its growth strategy. The Company's growth strategy presents the risks inherent in assessing the value, strengths and weaknesses of growth opportunities, in evaluating the costs and uncertain returns of expanding the operations of the Company, and in integrating acquisitions with existing operations. The Company expects that its growth strategy may affect short-term cash flow and net income as the Company increases the amount of its indebtedness and incurs expenses to open new locations, make acquisitions and expand its rental inventory. As a result, theCompany's revenue and operating results may fluctuate. There can be no assurance that the Company will successfully expand, that any acquired businesses will be successfully integrated into the Company's operations or that any expansion will result in profitability. The failure of the Company to successfully implement its growth strategy may have a material adverse effect on the Company's business, financial condition, results of operations or prospects or the market price of the Common Stock. The Company's anticipated growth will place significant demands on theCompany's management and its operational, financial and marketing resources. In connection with acquisitions and the opening of new locations, the Company anticipates experiencing growth in the number of its employees, the scope of its operating and financial systems and the geographic area of its operations. The Company believes this growth will increase the operating complexity of theCompany and the level of responsibility exercised by both existing and new management personnel. To manage this expected growth, the Company intends to invest further in its operating and financial systems and to continue to expand, train and manage its employee base. There can be no assurance that the Company will be able to attract and retain qualified management and employees or that the Company's current operating and financial systems and controls will be adequate as the Company grows or that any steps taken to improve such systems and controls will be sufficient. The failure of 10 12 the Company to successfully integrate and manage its growth may have a material adverse effect on the Company's business, financial condition, results of operations or prospects or the market price of the Common Stock. There may be liabilities that the Company fails or is unable to discover in the course of performing due diligence investigations on each company or business it has acquired or seeks to acquire in the future, including liabilities arising from non-compliance with applicable federal, state or local environmental requirements by prior owners and for which the Company, as a successor owner, may be responsible. The Company seeks to minimize the risk by conducting such due diligence, including environmental reviews, as it deems appropriate under the circumstances, but there can be no assurance that reasonable due diligence efforts will result in the identification of all existing conditions or risks. The Company also generally seeks to obtain rights to indemnification from each seller of acquired businesses or properties, which indemnification obligation may be supported by deferring payment of a portion of the purchase price or other appropriate security. However, there can no assurance that such indemnification, even if obtained, will be enforceable, collectible or sufficient in amount, scope or duration to fully offset the possible liabilities associated with the business or property acquired. Any such liabilities, individually or in the aggregate, could have a material adverse effect on the Company's business, financial condition, results of operations or prospects.DEPENDENCE ON ADDITIONAL CAPITAL FOR FUTURE GROWTH The Company's ability to remain competitive, sustain its growth and expand its operations through new locations and acquisitions largely depends on its access to capital. In addition, the Company must make ongoing capital expenditures to update and maintain the condition of its rental equipment inventory in order to provide its customers with high-quality equipment. To date, the Company has financed capital expenditures and acquisitions primarily through private equity, bank financing, vendor financing and the issuance of promissory notes. To implement its growth strategy and meet its capital needs, the Company plans to issue additional equity securities and incur additional indebtedness in the future. In addition, the Company may seek to increase its $265 million revolving credit facility (the "Credit Facility") from time to time after consummation of the Offering. The Company intends to use the net proceeds of the Offering to repay borrowings under the Credit Facility and may in the future issue additional equity or debt securities to repay additional outstanding amounts under the Credit Facility. Borrowings under the CreditFacility mature and must be repaid in full in July 2001. There can be no assurance that any of such increases or any additional capital, if and when required, will be available on terms acceptable to the Company, or at all. Failure by the Company to obtain sufficient additional capital in the future could force the Company to curtail its growth or delay capital expenditures, which could have a material adverse effect on the Company's business, financial condition, results of operations or prospects or the market price of the CommonStock. The Company's ability to finance future acquisitions, new locations and internal growth is currently limited by the covenants contained in the Credit Facility, including a number of covenants that, among other things, restrict the ability of the Company to dispose of assets or merge, incur debt, pay dividends, repurchase or redeem capital stock, create liens, make non-rental equipment capital expenditures and make certain investments or acquisitions and otherwise restrict corporate activities. The Credit Facility also contains, among other covenants, requirements that the Company maintain specified financial ratios, including minimum cash flow levels and interest coverage. See "Management'sDiscussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources," "Business -- Growth Strategy" and "Description of Certain Indebtedness." SUBSTANTIAL LEVERAGE The Company has a substantial amount of indebtedness. As of March 31, 1998, on a pro forma basis after giving effect to the Acquisitions, an additional equity contribution of $17.4 million from the Company's founders (the "Founders'Additional Contribution"), a $27.6 million private placement of shares of Common Stock (the "Private Placement"), certain borrowings under the Credit Facility, the Offering and the application of the estimated net proceeds therefrom, the Company would have had total indebtedness of approximately $191.3 million. 11 13 The degree to which the Company is leveraged could have important consequences to holders of the Common Stock including, but not limited to, the following: (i) the Company's ability to obtain additional financing in the future for working capital, capital expenditures, acquisitions or general corporate or other purposes may be limited; (ii) a substantial portion of theCompany's cash flow from operations will be dedicated to the payment of the principal of, and interest on, its indebtedness; (iii) the agreements governing the Company's long-term indebtedness will contain certain restrictive financial and operating covenants that could limit the Company's ability to compete and expand; and (iv) the Company's substantial leverage may make it more vulnerable to economic downturns, limit its ability to withstand competitive pressures and reduce its flexibility in responding to changing business and economic conditions. See "Capitalization," "Management's Discussion and Analysis ofFinancial Condition and Results of Operations -- Liquidity and Capital Resources," "Description of Certain Indebtedness" and the Consolidated Financial Statements included elsewhere in this Prospectus. COMPETITION The equipment rental industry is highly competitive. The Company's competitors include large national rental companies, equipment manufacturers, regional corporations, smaller independent businesses, and equipment vendors and dealers who both sell and rent equipment to customers. Some of the Company's competitors have greater financial resources, are more geographically diverse, and have greater name recognition than the Company. There can be no assurance that the Company will not encounter increased competition from existing competitors or new market entrants, such as equipment manufacturers, that may be significantly larger and have greater financial and marketing resources than theCompany. If existing or future competitors reduce prices to gain or retain market share and the Company must also reduce prices to remain competitive, it could have a material adverse effect on the Company's business, financial condition, results of operations or prospects. Additionally, existing or future competitors may seek to compete with the Company for acquisition candidates or new locations, which may have the effect of increasing acquisition prices and reducing the number of suitable acquisition candidates or expansion locations which could have a material adverse effect on the Company's growth strategy, its business, financial condition, results of operations or prospects or the market price of the Common Stock. See "Business -- Competition."SEASONALITY AND QUARTERLY FLUCTUATIONS IN REVENUE AND OPERATING RESULTS Many of the Company's current locations are in the Midwest region of the United States. During the winter months of December through March, the Company experiences a slowdown in rentals to construction customers as a result of adverse weather conditions. In addition, the Company's revenue and operating results have varied throughout the year and are expected to continue to fluctuate in the future due to a number of factors, including (i) general economic conditions in the Company's markets, (ii) the timing of acquisitions and new location openings and related costs, (iii) the effectiveness of integrating acquired businesses and new locations, (iv) rental patterns of theCompany's customers and (v) price changes in response to competitive factors. The Company incurs various costs in establishing or integrating newly acquired or opened locations, and the profitability of a new location is generally expected to be lower in the initial months of operation. LIABILITY AND INSURANCE The Company's business exposes it to possible claims for personal injury or death resulting from the use of equipment rented or sold by the Company and from injuries caused in motor vehicle accidents in which Company delivery and service personnel are involved. The Company carries comprehensive insurance subject to deductibles at levels it believes are sufficient to cover existing and future claims. Although the Company has not experienced any material losses that were not covered by insurance, there can be no assurance that existing or future claims will not exceed the level of the Company's insurance or that such insurance will continue to be available on economically reasonable terms, or at all. 12 14ENVIRONMENTAL AND SAFETY REGULATION The Company's equipment, facilities and operations are subject to certain federal, state and local laws and regulations relating to environmental protection and occupational health and safety, including those governing wastewater discharges, the use, treatment, storage and disposal of solid and hazardous wastes and materials, air quality and the remediation of contamination associated with the release of hazardous substances. Certain of the Company's existing and former locations use and have used, substances, and currently generate or have generated or disposed of wastes, which are or may be considered hazardous or otherwise are subject to applicable environmental requirements. In particular, the Company stores and dispenses, or has in the past stored and dispensed, petroleum products from aboveground storage tanks and, in certain cases, underground storage tanks at its locations. The Company also uses hazardous materials, including solvents, to clean and maintain equipment, and generates and disposes of solid and hazardous wastes, including batteries, used motor oil, radiator fluid and solvents. In connection with such activities, theCompany has incurred minimal capital expenditures and other compliance costs which are expensed on a current basis and which, to date, have not been material to the Company's financial condition. Based on currently available information, the Company believes that the possibility is remote that it will have to incur material capital expenditures or other material compliance or remediation costs for environmental and safety matters in the foreseeable future. There can be no assurance, however, that environmental and safety requirements will not become more stringent or be interpreted and applied more stringently in the future, or that the Company will not identify adverse environmental conditions that are not currently known to the Company. Such future changes or interpretations, or the identification of such adverse environmental conditions, could result in additional environmental compliance or remediation costs not currently anticipated by the Company, which could have a material adverse effect on theCompany's business, financial condition, results of operations or prospects or the market price of the Common Stock. See "Business -- Environmental and Safety Regulation." DEPENDENCE ON EXECUTIVE OFFICERS AND DIRECTORS The Company's future success depends to a significant extent on retaining the services of certain executive officers and directors. The Company does not maintain key man insurance. The loss of the services of key employees or directors (whether such loss is through resignation or other causes) or the inability to attract additional qualified personnel could have a material adverse effect on the Company's business, financial condition, results of operations or prospects or the market price of the Common Stock.SIGNIFICANT STOCKHOLDERS Following the Offering, the executive officers and directors of the Company, including H. Wayne Huizenga, will own approximately 37.8% of the outstanding Common Stock (36.2% if the Underwriters' over-allotment option is exercised in full). In addition, H. Family Investments, Inc., a Florida corporation controlled by H. Wayne Huizenga, Jr., Mr. Huizenga's son, will own approximately 27.8% of the outstanding Common Stock (26.6% if the Underwriter's over-allotment option is exercised in full). Additionally, the HuizengaInvestors are expected to purchase in the Offering an aggregate of 3,125,000 shares of Common Stock, which will represent approximately 7.2% of the outstanding Common Stock (6.9% if the Underwriters' over-allotment option is exercised in full). As a result, the executive officers and directors of the Company will, together with H. Family Investments, Inc. and the HuizengaInvestors, be able to exercise a controlling influence over the outcome of matters submitted to the Company's stockholders for approval, including the election of directors. SHARES ELIGIBLE FOR FUTURE SALE Immediately following the consummation of the Offering, the Company will have 43,118,694 shares of Common Stock outstanding (45,068,694 shares if theUnderwriters' over-allotment option is exercised in full), including 30,118,694 outstanding shares of Common Stock presently beneficially owned by existing stockholders. The 13,000,000 shares of Common Stock to be sold pursuant to the Offering (14,950,000 shares if the Underwriters' over-allotment option is exercised in full) will be eligible for sale without restriction under theSecurities Act in the public market after the consummation of the Offering by persons other than affiliates 13 15 of the Company. Sales of shares by "affiliates" of the Company, as the term is defined in Rule 144 under the Securities Act ("Affiliates"), will be subject to Rule 144. The Company and the officers, directors and certain security holders of the Company, who will beneficially own in the aggregate 30,118,694 outstanding shares and securities convertible into or exercisable for 6,223,750 shares of Common Stock immediately prior to the consummation of the Offering, have agreed with the Underwriters (the "Lock-up Agreements") not to offer, sell or otherwise dispose of any shares of Common Stock or any security convertible into, exercisable for or exchangeable for shares of Common Stock for a period of 180 days after the date of this Prospectus without the prior written consent ofBear, Stearns & Co. Inc., except that (i) stockholders may make transfers as gifts if the donee agrees to be bound by a Lock-up Agreement, (ii) certain security holders will be permitted to pledge or margin their shares in a bona fide loan transaction with a third party lender, (iii) the Company may at any time and from time to time issue shares of Common Stock to third parties as consideration for the Company's acquisition from such third parties of equipment rental businesses and (iv) the Company may issue options pursuant to the 1998Stock Option Plan and shares of Common Stock upon the exercise of certain options granted to non-employee directors. The Company may issue shares of Common Stock in connection with acquisitions prior to the expiration of the 180-day lock-up period. The Company is not aware of any officer, director or other security holder that plans to offer or sell any shares of Common Stock prior to the expiration of the 180-day lock-up period. Following the expiration or waiver of the foregoing restrictions on dispositions and any applicable holding periods under Rule 144, 30,118,694 outstanding shares of Common Stock owned by existing stockholders will be available for sale in the public market pursuant to Rule 144 (including the volume and other limitations set forth therein). In connection with the PrivatePlacement, the Company agreed to use its reasonable efforts following consummation of the Offering to register for resale shares of Common Stock issued in the Private Placement. In addition, in connection with certain of the Acquisitions, the Company has agreed to register for resale the shares of Common Stock issuable upon exercise of certain warrants and upon conversion of certain convertible promissory notes. The Company has filed a registration statement to register for resale on a continuous basis from time to time, subject to theLock-up Agreements, 36,342,444 shares of Common Stock, 30,118,694 shares of which are held by the Company's existing stockholders and 6,223,750 shares of which are issuable upon exercise or conversion of outstanding warrants and convertible promissory notes. The Company caused this registration statement to become effective prior to the consummation of the Offering and intends to maintain its continuous effectiveness, including through filing post-effective amendments, indefinitely. The purpose of this resale registration statement is to provide liquidity to the selling stockholders named therein, some of whom will have the ability to pledge or margin their shares of Common Stock in connection with a bona fide loan transaction with a third party lender. The shares of Common Stock covered by this resale registration statement are freely tradeable subject to the Lock-up Agreements, which prohibit the selling stockholders from selling or otherwise disposing of any shares of Common Stock for a period of 180 days after the date of this Prospectus without the prior written consent of Bear, Stearns & Co. Inc. In addition, the Company intends to register on a registration statement on Form S-8 shares of Common Stock reserved for issuance upon exercise of options that may be granted to certain employees and non-employee directors under the 1998 Stock Option Plan and otherwise. TheCompany may also from time to time file registration statements covering the issuance and/or resale of shares of Common Stock which may be issued in potential future acquisitions. See "Management -- Stock Option Plan," "Description of Certain Indebtedness -- Promissory Notes" and "Description of Capital Stock -- Warrants and Options." No prediction can be made as to the effect, if any, that market sales of shares held by the Company's existing stockholders or future stockholders, or the availability of such shares for future sales, or market sales of shares sold in the Offering pursuant to this Prospectus or the availability of such shares for future sales, will have on the market price of the Common Stock from time to time. Sales of significant amounts of Common Stock in the public market could materially adversely affect the market price of the Common Stock or could materially impair the Company's future ability to realize capital through an offering of equity securities. See "Shares Eligible for Future Sale." 14 | 0.011762 | 30.15 | 1140.80 | 1075.812 | 104000000 | 236.398 | False | 1998 |
| 3328 | 4.0 | 130.0 | 3000.0 | 99.401897 | SANTA CLARA | 17.3125 | 0.887 | 98.80 | 10609.55 | False | NASDQ | True | False | Healthcare, Medical Equipment, and Drugs | Medical Equipment | Healthcare, Medical Equipment, and Drugs | 152749.9 | 130000000.0 | Align Technology Inc | 0.012375 | 1800000.0 | Deutsche Banc Alex Brown | 2640.57 | -97.474 | 22.0 | 2 | 23 | 11.0 | 13.00 | 0.413043 | False | 152749.9 | 1 | 6.044304 | 9.00100 | 9.001 | 139.019 | RISK FACTORS Investing in our common stock involves a high degree of risk. You should carefully consider the following risk factors and all other information contained in this prospectus before purchasing our common stock. The risks and uncertainties described below are not the only ones facing us. Additional risks and uncertainties that we are unaware of, or that we currently deem immaterial, also may become important factors that affect usIf any of the following risks occur, our business, financial condition or results of operations could be materially and adversely affected. In that case, the trading price of our common stock could decline, and you may lose some or all of your investment. Risks Related to Our Business Since we have a history of losses and negative cash flows, and we expect our operating expenses to continue to increase, we may not achieve or maintain profitability in the futureWe have incurred significant operating losses and have not achieved profitability. We have incurred net losses of $73.2 million for the period from our inception in April 1997 through September 30, 2000, including a net loss of $15.4 million in 1999 and $53.3 million for the nine months ended September 30, 2000. We incurred negative cash flows of $11.6 million from operating activities in 1999 and $31.2 million for the nine months ended September 30, 2000. From inception through July 2000, we have spent significant funds in organizational and start-up activities, to recruit key managers and employees, to develop the Invisalign System and to develop our manufacturing and customer support resources. We have also spent significant funds on clinical trials and training programs to train orthodontists in the use of the Invisalign System. We expect to have net losses and negative operating cash flows for at least the next 18 monthsWe intend to increase our operating expenses as we continue to: . scale our manufacturing operations; . develop new software and increase the automation of our manufacturing processes; . execute our national direct to consumer marketing campaign; . increase the size of our sales force and orthodontist training staff; . undertake quality assurance and improvement initiatives; and . increase our general and administrative functions to support our growing operationsAs a result, we will need to increase our revenue significantly, while controlling our expenses, to achieve profitability. It is possible that we will not achieve profitability, and even if we do achieve profitability, we may not sustain or increase profitability in the future. We have a limited operating history and expect our future financial results to fluctuate significantly, which may cause our stock price to declineWe were incorporated in April 1997 and have only recently begun selling our Invisalign System in commercial quantities. Thus, we have a limited operating history which makes an evaluation of our future prospects and your investment in our stock difficult. In addition, we expect our future quarterly and annual operating results to fluctuate as we increase our commercial sales. These fluctuations could cause our stock price to decline. Some of the factors that could cause our operating results to fluctuate include: . changes in the timing of product orders; . unanticipated delays in production caused by insufficient capacity or in the introduction of new production processes; 5 . inaccurate forecasting of revenue, production and other operating costs; and . the development and marketing of directly competitive products by potential competitorsTo respond to these and other factors, we may need to make business decisions that could adversely affect our operating results. Most of our expenses, such as employee compensation and lease payment obligations, are relatively fixed in the short term. Moreover, our expense levels are based, in part, on our expectations regarding future revenue levels. As a result, if our revenue for a particular period fall below our expectations, we may be unable to adjust spending quickly enough to offset any unexpected shortfall in revenue growth or any decrease in revenue levelsDue to these and other factors, we believe that quarter-to-quarter comparisons of our operating results may not be meaningful. You should not rely on our results for any one quarter as an indication of our future performance. We have limited product offerings, and if demand for our Invisalign System declines or fails to develop as we expect, our revenue will declineWe derive a substantial portion of our revenue from the sale of our Invisalign System. For the nine-month period ended September 30, 2000, we derived 71% of our revenue from the sale of our Invisalign System. We expect that revenue from the sale of our Invisalign System will continue to account for a substantial portion of our total revenue. Continued and widespread market acceptance of our System is critical to our future success. The Invisalign System may not achieve market acceptance at the rate at which we expect, or at all, which could reduce our revenue. If orthodontists do not adopt our Invisalign System in sufficient numbers or as rapidly as we anticipate, our operating results will be harmedAs of November 30, 2000, approximately 2,000 of the 5,300 orthodontists we had trained had submitted one or more cases to us. Our success depends upon increasing acceptance by orthodontists and dentists of the Invisalign System. The Invisalign System requires orthodontists and their staff to undergo special training and learn to interact with patients in new ways and to interact with us as a supplier. In addition, because our Invisalign System has only been in clinical testing since July 1997 and commercially available since July 1999, orthodontists may be reluctant to adopt it until more historical clinical results are available. Also, increasing adoption by orthodontists will depend on factors such as the capability, safety, efficacy, ease of use, price, quality and reliability of our products and our provision of effective sales support, training and service. In the future, unanticipated poor clinical performance of the Invisalign System could result in significant adverse publicity and consequently in reduced acceptance by orthodontists. If our Invisalign System does not achieve growing acceptance in the orthodontic and dental communities, our operating results will be harmed. If consumers do not adopt our Invisalign System in sufficient numbers or as rapidly as we anticipate, our operating results will be harmedOur Invisalign System represents a significant change from traditional orthodontic treatment, and patients may be reluctant to accept it or may not find it preferable to conventional treatment. In addition, patients may not comply with recommended treatment 6 guidelines which could compromise the effectiveness of their treatment. While we have generally received positive feedback from both orthodontists and patients regarding our Invisalign System as both an alternative to braces and as a clinical method for treatment of malocclusion, our success will depend upon the rapid acceptance of our System by the substantially larger number of potential patients to which we are now actively marketing. We have had a limited number of complaints from patients and prospective patients generally related to shipping delays and minor manufacturing irregularities. Market acceptance will depend in part upon the recommendations of dentists and orthodontists, as well as other factors including effectiveness, safety, reliability, improved treatment aesthetics and greater comfort and hygiene compared to conventional orthodontic products. Furthermore, consumers may not respond to our direct marketing campaigns or we may be unsuccessful in reaching our target audience. If consumers prove unwilling to adopt our Invisalign System as rapidly or in the numbers that we anticipate, our operating results will be harmed. Our success depends in part on our proprietary technology and if we are unable to successfully enforce our intellectual property rights, our competitive position may be harmedOur success will depend in part on our ability to maintain existing intellectual property and to obtain and maintain further intellectual property protection for our products, both in the U.S. and in other countries. Our inability to do so could harm our competitive position. We have one issued U.S. patent and 46 pending U.S. patent applications. We have two foreign-issued patents and 111 pending foreign patent applications. We intend to rely on our portfolio of issued and pending patent applications in the U.S. and in other countries to protect a large part of our intellectual property and our competitive position. However, our currently pending or future patent filings may not issue as patents. Additionally, any patents issued to us may be challenged, invalidated, held unenforceable, circumvented, or may not be sufficiently broad to prevent third parties from producing competing products similar in design to our products. In addition, protection afforded by foreign patents may be more limited than that provided under U.S. patents and intellectual property lawsWe also rely on protection of copyrights, trade secrets, know-how and proprietary information. We generally enter into confidentiality agreements with our employees, consultants and our collaborative partners upon commencement of a relationship with us. However, these agreements may not provide meaningful protection against the unauthorized use or disclosure of our trade secrets or other confidential information and adequate remedies may not exist if unauthorized use or disclosure were to occur. Our inability to maintain the proprietary nature of our technology through patents, copyrights or trade secrets would impair our competitive advantages and could have a material adverse effect on our operating results, financial condition and future growth prospects. In particular, a failure of our proprietary rights might allow competitors to copy our technology, which could adversely affect pricing and market share. If we infringe the patents or proprietary rights of other parties, our ability to grow our business will be severely limitedExtensive litigation over patents and other intellectual property rights is common in the medical device industry. We have been sued for infringement of another party's patent in the past and, while that action has been dismissed, we may be the subject of patent or other litigation in the future In January 2000, Ormco Corporation filed suit against us asserting an infringement of U.S. Patent Nos. 5,447,432 and 5,683,243. The complaint sought unspecified monetary damages and equitable relief. The complaint alleged that the Invisalign System infringed certain claims of the two patents relating to computer modeling of an ideal dentition and the production of 7 orthodontic appliances based upon the ideal dentition. The suit has been dismissed but can be recommenced under certain circumstances. See "Business-- Legal Proceedings." If the Ormco suit were recommenced and if Ormco were to prevail, we would have to seek a license from Ormco, which license might not be available on commercially reasonable terms or at all. In that event, we could be subject to damages or an injunction which could materially adversely affect our businessFrom time to time, we have received and may again receive letters from third parties drawing our attention to their patent rights. While we do not believe that we infringe any valid and enforceable rights which have been brought to our attention, there may be other more pertinent rights of which we are presently unaware. The defense and prosecution of intellectual property suits, interference proceedings and related legal and administrative proceedings could result in substantial expense to us and significant diversion of effort by our technical and management personnel. An adverse determination in a patent suit by Ormco or in any other litigation or interference proceeding to which we may become a party could subject us to significant liabilities. An adverse determination of this nature could also put our patents at risk of being invalidated or interpreted narrowly or require us to seek licenses from third parties. Licenses may not be available on commercially reasonable terms or at all, in which event, our business would be materially adversely affected. We have limited experience in manufacturing our products and if we encounter manufacturing problems or delays, our ability to generate revenue will be limitedWe have manufactured a limited number of our products to date. Our manufacturing processes rely on complex three-dimensional scanning, geometrical manipulation and modeling technologies that have historically not been used on the scale we require. Each item that we manufacture is geometrically unique and we have not manufactured our products in the commercial volumes which will be required to make us profitable. Accordingly, we may be unable to establish or maintain reliable, high-volume manufacturing capacity. Even if this capacity can be established and maintained, the cost of doing so may increase the cost of our products. We may encounter difficulties in scaling up production to meet demand, including: . problems involving production yields; . shortages of key manufacturing equipment; . shortages of qualified personnel, in particular dental and orthodontic personnel; . failure to develop new software processes; and . compliance with applicable Quality System regulations enforced by the Food and Drug Administration, or FDAOur manufacturing process is complex. Since all our products are designed for individual patients, we manufacture our products to fill purchase orders rather than maintaining inventories of assembled products. If demand for our products exceeds our manufacturing capacity, we could develop a substantial backlog of customer orders. If we are unable to establish and maintain larger- scale manufacturing capabilities, our ability to generate revenue will be limited and our reputation in the marketplace would be damaged. We currently rely on third parties to provide key inputs to our manufacturing process, and if our access to these inputs is diminished, our business may be harmedWe currently outsource key portions of our manufacturing process. We rely on a third party manufacturer in Mexico to fabricate Aligners and to ship the completed product to customers. In addition, third party rapid prototyping bureaus fabricate some molds from which 8 the Aligners are formed. As a result, if any of our third party manufacturers fail to deliver their components or if we lose their services, we may be unable to deliver our products in a timely manner and our business may be harmed. Finding substitute manufacturers may be expensive, time-consuming or impossible. Although we are in the process of developing the capability to fabricate all molds and Aligners internally, we may not be successful and may continue to rely on outsourcing in the futureIn addition, we are highly dependent on manufacturers of specialized scanning equipment, rapid prototyping machines, resin and other advanced materials. We maintain single supply relationships for many of these machines and materials technologies. Our rapid growth may exceed the capacity of these manufacturers to produce the needed equipment and materials in sufficient quantities to support our growth. In the event of delivery delays or shortages of these items, our business and growth prospects may be harmed. We are dependent on our international manufacturing operations, which exposes us to foreign operational and political risks that may harm our businessTwo of our key production steps are performed in manufacturing operations located outside the U.S. We currently rely on our facilities in Pakistan to create electronic treatment plans with the assistance of sophisticated software. We employ approximately 650 people in Lahore, Pakistan in this effort. We anticipate that we will need to expand our personnel and facilities in Pakistan in order to scale our manufacturing operations. In addition, we rely on third party manufacturers in Mexico to fabricate Aligners and to ship the completed product to customers. Our reliance on international operations exposes us to risks and uncertainties, including: . difficulties in staffing and managing international operations; . controlling quality of manufacture; . political, social and economic instability; . interruptions and limitations in telecommunication services; . product or material transportation delays or disruption; . trade restrictions and changes in tariffs; . import and export license requirements and restrictions; . fluctuations in currency exchange rates; and . potential adverse tax consequencesIf any of these risks materialize, our operating results may be harmed. We are growing rapidly, and our failure to manage this growth could harm our business We have experienced significant growth in recent periods. Our headcount increased from 50 employees as of June 30, 1999 to approximately 1,080 employees as of November 30, 2000. In mid-2000, we approved major expansions to our existing facilities and the building of new facilities. We expect that our growth will place significant demands on our management and other resources and will require us to continue to develop and improve our operational, financial and other internal controls both in the U.S. and internationally. In particular, continued growth increases the challenges involved in a number of areas, including: recruiting and retaining sufficient skilled personnel, providing adequate training and supervision to maintain our high quality standards, and preserving our culture and values. Our inability to manage this growth effectively would harm our business. 9 If we lose our key personnel or are unable to attract and retain key personnel, we may be unable to pursue business opportunities or develop our productsWe are highly dependent on the key employees in our clinical engineering and management teams. The loss of the services of those individuals may significantly delay or prevent the achievement of our product development and other business objectives and could harm our business. Our future success will also depend on our ability to identify, recruit, train and retain additional qualified personnel. There is currently a shortage of skilled clinical, engineering and management personnel and intense competition for these personnel, especially in Silicon Valley where our headquarters is located. In addition, few orthodontists are accustomed to working in a manufacturing environment since they are generally trained to work in private practices, universities and other research institutions. Thus, we may be unable to attract and retain personnel with the advanced qualifications necessary for the further development of our business. Furthermore, we may not be successful in retaining our key personnel or their services. We experience competition from manufacturers of traditional braces and expect aggressive competition in the futureWe are not aware of any company that is marketing or developing a system directly comparable to our Invisalign System. However, manufacturers of traditional braces, such as 3M Company, Sybron International Corporation and Dentsply International, Inc. have substantially greater financial resources and manufacturing and marketing experience than we do and may, in the future, attempt to develop an orthodontic system similar to ours. Large consumer products companies may also enter the orthodontic supply market. Furthermore, we may face competition in the future from new companies that may introduce new technologies. We may be unable to compete with these competitors and one or more of these competitors may render our technology obsolete or economically unattractive. If we are unable to compete effectively with existing products or respond effectively to any products developed by our competitors, our business will be harmed. Complying with the Food and Drug Administration and other regulations is an expensive and time-consuming process, and any failure to comply could result in substantial penaltiesOur products are medical devices and subject to extensive regulation in the U.S. and internationally. FDA regulations are wide ranging and govern, among other things: . product design, development, manufacture and testing; . product labeling; . product storage; . premarket clearance or approval; . advertising and promotion; and . product sales and distributionNoncompliance with applicable regulatory requirements can result in enforcement action which may include recalling products, ceasing product marketing, and paying significant fines and penalties, which could limit product sales, delay product shipment and adversely affect our profitability In the U.S. we must comply with facility registration and product listing requirements of the FDA and adhere to applicable Quality System regulations. The FDA enforces its Quality 10 System regulations through periodic unannounced inspections, which we have yet to undergo. If we or any third party manufacturer of our products do not conform to applicable Quality System regulations, we may be required to find alternative manufacturers, which could be a long and costly processBefore we can sell a new medical device in the U.S., we must obtain FDA clearance or approval, which can be a lengthy and time-consuming process. Even though the devices we market have obtained the necessary clearances from the FDA through the premarket notification provisions of Section 510(k) of the federal Food, Drug, and Cosmetic Act, we may be unable to maintain the necessary clearances in the future. Furthermore, we may be unable to obtain the necessary clearances for new devices that we market in the future. Please see "Business--Government Regulation" for a more detailed discussion of the regulations that govern our industry. Extensive and changing government regulation of the healthcare industry may be expensive to comply with and exposes us to the risk of substantial government penaltiesIn addition to medical device laws and regulations, numerous state and federal healthcare-related laws regulate our business, covering areas such as: . storage, transmission and disclosure of medical information and healthcare records; . prohibitions against the offer, payment or receipt of remuneration to induce referrals to entities providing healthcare services or goods; and . the marketing and advertising of our productsComplying with these laws and regulations could be expensive and time- consuming, and could increase our costs or reduce or eliminate certain of our activities or our revenues. See "Business--Government Regulation." We face risks related to our international operations, including the need to obtain necessary foreign regulatory clearance or approvals Sales of our products outside the U.S. are subject to foreign regulatory requirements that vary widely from country to country. The time required to obtain clearances or approvals required by other countries may be longer than that required for FDA clearance or approval, and requirements for such approvals may differ from FDA requirements. We may be unable to obtain regulatory approvals in other countries. We may also incur significant costs in attempting to obtain and in maintaining foreign regulatory approvals. If we experience delays in receipt of approvals to market our products outside of the U.S., or if we fail to receive these approvals, we may be unable to market our products or enhancements in international markets in a timely manner, if at all. Our business exposes us to risks of product liability claims, and we may incur substantial expenses if we are sued for product liabilityMedical devices involve an inherent risk of product liability claims and associated adverse publicity. We may be held liable if any product we develop or any product that uses or incorporates any of our technologies causes injury or is otherwise found unsuitable. Although we intend to continue to maintain product liability insurance, adequate insurance may not be available on acceptable terms and may not provide adequate coverage against potential liabilities. A product liability claim, regardless of its merit or eventual outcome, could result in significant legal defense costs. These costs would have the effect of increasing our expenses and could harm our business. 11 We may be unable to raise additional capital if it should be necessary, which could harm our ability to competeWe expect to expend significant capital to establish a national brand, build manufacturing infrastructure and develop both product and process technology. These initiatives may require us to raise additional capital over the next few years. We believe that the proceeds from this offering and the capital that we have already raised should be sufficient to fund our operations for at least the next 12 months. However, we may consume available resources more rapidly than anticipated and we may not be able to raise additional funds when needed, or on acceptable terms. Risks Related to this Offering The market price for our common stock may be highly volatile, and you may not be able to resell your shares at or above the initial public offering priceBefore this offering, there has not been a public market for our common stock. An active trading market for our common stock may not develop following this offering. You may not be able to sell your shares quickly or at the market price if trading in our stock is not active. Further, the market price of our common stock may decline below the price you paid for your shares. The initial public offering price for the shares was determined by negotiations between us and the representatives of the underwriters and may not be indicative of prices that will prevail in the trading market. Please see "Underwriting" for more information regarding our arrangement with the underwriters and the factors considered in setting the initial public offering priceThe trading price of our common stock is likely to be highly volatile and could be subject to wide fluctuations in price in response to various factors, many of which are beyond our control, including: . quarterly variations in our results of operations; . changes in recommendations by the investment community or in their estimates of our revenues or operating results; . speculation in the press or investment community; . strategic actions by our competitors, such as product announcements or acquisitions; and . general market conditionsIn addition, the stock market in general, and the market for technology and medical device companies in particular, have experienced extreme price and volume fluctuations that have often been unrelated to or disproportionate to the operating performance of those companies. These broad market and industry factors may seriously harm the market price of our common stock, regardless of our operating performanceIn the past, following periods of volatility in the market price of a company's securities, class action litigation has often been brought against the company. If a securities class action suit is filed against us, we would incur substantial legal fees and our management's attention and resources would be diverted from operating our business in order to respond to the litigation. The large number of shares eligible for public sale after this offering could cause our stock price to declineThe market price of our stock could decline as a result of sales by our existing stockholders of a large number of shares of our stock in the market after this offering or the 12 perception that these sales could occur. These sales also might make it more difficult for us to sell equity securities in the future at a time and at a price that we deem appropriateAfter this offering, we will have 45,616,402 shares of common stock outstanding. All of our officers and directors and substantially all of our existing stockholders have entered into lock-up agreements providing that they will not sell any of our common stock until 180 days from the date of this prospectus, without the prior written consent of Deutsche Banc Alex. Brown Inc. Deutsche Banc Alex. Brown Inc. may release the shares subject to the lock-up agreements in whole or in part at any time without prior public notice. However, Deutsche Banc Alex. Brown Inc. has no current plans to effect such a release. Please see "Shares Eligible for Future Sale" for a description of sales that may occur in the future. Our management has broad discretion in using the proceeds from this offering, which might not be used in ways that improve our operating results or increase our market valueOur management will have broad discretion as to how the net proceeds of this offering will be used, including uses which may not improve our operating results or increase our market value. Investors will rely on the judgment of management regarding the application of the proceeds of this offering. Anti-takeover provisions in our charter documents and under Delaware law may make an acquisition of us more difficultProvisions of our certificate of incorporation and bylaws could make it more difficult for a third party to acquire us, even if doing so would be beneficial to our stockholders. These provisions: . prevent stockholders from taking action by written consent; . limit the persons who may call special meetings of stockholders; . authorize the issuance of preferred stock in one or more series; and . require advance notice for stockholder proposals and director nominationsIn addition, Section 203 of the Delaware General Corporation Law also imposes restrictions on mergers and other business combinations between us and any holder of 15% or more of our common stock. Please see "Description of Capital Stock--Preferred Stock" and "Description of Capital Stock--Antitakeover Effects of Provisions of the Certificate of Incorporation, Bylaws and Delaware Law" for a more detailed discussion of these anti-takeover provisions. Concentrations of ownership and agreements among our existing executive officers, directors and principal stockholders may prevent new investors from influencing significant corporate transactionsThe interest of management could conflict with the interest of our other stockholders. Upon completion of this offering, our executive officers, directors and principal stockholders will beneficially own, in total, approximately 62% of our outstanding common stock. As a result, these stockholders will be able to exercise control over all matters requiring stockholder approval, including the election of directors and approval of significant corporate transactions. This could have the effect of delaying or preventing a change of control of Align, which in turn could reduce the market price of our stock. 13 New investors in our common stock will experience immediate and substantial dilutionThe offering price of our common stock will be substantially higher than the net tangible book value per share of our existing capital stock. As a result, if you purchase common stock in this offering, you will incur immediate and substantial dilution of $8.52 in net tangible book value per share of common stock, based on the public offering price of $13.00 per share. You will also experience additional dilution upon the exercise of outstanding stock options and warrants. Please see "Dilution" for a more detailed discussion of the dilution new investors will incur in this offering. 14 | -0.824528 | 21.92 | 1326.82 | 118.218 | 130000000 | 46.384 | True | 2001 |
| 3329 | 4.0 | 37.3 | 5000.0 | 89.367970 | REDWOOD CITY | 7.1400 | -0.827 | 98.93 | 10471.47 | False | NASDQ | True | True | Healthcare, Medical Equipment, and Drugs | Pharmaceutical Products | Healthcare, Medical Equipment, and Drugs | 146171.0 | 37333331.0 | Threshold Pharmaceuticals Inc | 0.003732 | 522666.0 | Banc of America Securities LLC\nCIBC World Markets Inc | 2045.88 | -44.408 | 17.0 | 0 | 4 | 15.0 | 7.00 | 0.447205 | False | 146171.0 | 0 | 8.001000 | 8.00100 | 8.001 | 32.004 | risk factors any investment in our stock involves a high degree of risk. you should consider carefully the risks and uncertainties described below and all information contained in this prospectus, before you decide whether to purchase our common stock. the trading price of our common stock could decline due to any of these risks or uncertainties, and you may lose part or all of your investment. risks related to our business risks related to drug discovery, development and commercialization we are substantially dependent upon the success of our glufosfamide and th-070 product candidates. pivotal clinical trials for our products may not demonstrate efficacy or lead to regulatory approval. our product candidates must undergo rigorous clinical testing, the results of which are uncertain and could substantially delay or prevent us from bringing them to market. before we can obtain regulatory approval for a product candidate, we must undertake extensive clinical testing in humans to demonstrate safety and efficacy to the satisfaction of the fda or other regulatory agencies. clinical trials of new drug candidates sufficient to obtain regulatory marketing approval are expensive and take years to complete. 8 we cannot assure you that we will successfully complete clinical testing within the time frame we have planned, or at all. we may experience numerous unforeseen events during, or as a result of, the clinical trial process that could delay or prevent us from receiving regulatory approval or commercializing our product candidates, including the following: our clinical trials may produce negative or inconclusive results, and we may decide, or regulators may require us, to conduct additional clinical and/or preclinical testing or to abandon programs; the results obtained in earlier stage testing may not be indicative of results in future trials; trial results may not meet the level of statistical significance required by the fda or other regulatory agencies; enrollment in our clinical trials for our product candidates may be slower than we anticipate, resulting in significant delays; we, or regulators, may suspend or terminate our clinical trials if the participating patients are being exposed to unacceptable health risks; and the effects of our product candidates on patients may not be the desired effects or may include undesirable side effects or other characteristics that may delay or preclude regulatory approval or limit their commercial use, if approved. completion of clinical trials depends, among other things, on our ability to enroll a sufficient number of patients, which is a function of many factors, including: the therapeutic endpoints chosen for evaluation; the eligibility criteria defined in the protocol; the size of the patient population required for analysis of the trials therapeutic endpoints; our ability to recruit clinical trial investigators with the appropriate competencies and experience; our ability to obtain and maintain patient consents; and competition for patients by clinical trial programs for other treatments. we may experience difficulties in enrolling patients in our clinical trials, which could increase the costs or affect the timing or outcome of these trials. this is particularly true with respect to diseases with relatively small patient populations, such as pancreatic cancer, which is an indication for our glufosfamide product candidate.we are subject to significant regulatory approval requirements, which could delay, prevent or limit our ability to market our product candidates. the fast track designation for development of glufosfamide for the treatment of refractory pancreatic cancer may not lead to a faster development or regulatory review or approval process. if a drug is intended for the treatment of a serious or life-threatening condition and the drug demonstrates the potential to address unmet medical needs for this condition, the drug sponsor may apply for fda fast track designation for a particular indication. marketing applications filed by sponsors of products in fast track development may qualify for expedited fda review under the policies and procedures offered by the fda, but the fast track designation does not assure any such qualification. although we have obtained a fast track designation from the fda for glufosfamide for the treatment of refractory pancreatic cancer, we may not experience a faster development process, review or approval compared to drugs considered for approval under conventional fda procedures. in addition, the fda may withdraw our fast track designation at any time. if we lose our fast track designation, the approval process may be delayed. in addition, our fast track designation does not guarantee that we will qualify for or be able to take advantage of the expedited review procedures and does not increase the likelihood that glufosfamide will receive regulatory approval for the treatment of refractory pancreatic cancer.our product candidates are based on metabolic targeting, which is an unproven approach to therapeutic intervention. all of our product candidates are based on metabolic targeting, a therapeutic approach that targets fundamental differences in energy metabolism between normal and certain diseased cells. we have not, nor to our knowledge has any other company, received regulatory approval for a drug based on this approach. there can be no assurance that our approach will lead to the development of approvable or marketable drugs. in addition, the fda or other regulatory agencies may lack experience in evaluating the safety and efficacy of drugs based on metabolic targeting, which could lengthen the regulatory review process, increase our development costs and delay or prevent commercialization of our product candidates.our product candidates may have undesirable side effects that prevent their regulatory approval or limit their use if approved. glufosfamide is known to cause reversible toxicity to the bone marrow and kidneys, as well as nausea and vomiting. th-070, which we are developing to treat patients with bph, has been investigated as a male contraceptive and is known to cause reversible effects on fertility in animals. in human clinical trials at doses significantly higher than the dose of th-070 we contemplate investigating for bph, muscle and testicular pain have been observed. these side effects or others that could be identified in the course of our clinical trials or that may otherwise be associated with our product candidates may outweigh the benefits of our product candidates and prevent regulatory approval or limit their market acceptance if they are approved.delays in clinical testing could result in increased costs to us and delay our ability to obtain regulatory approval and commercialize our product candidates. significant delays in clinical testing could materially impact our product development costs and delay regulatory approval of our product candidates. we do not know whether planned clinical trials will begin on 10 time, will need to be redesigned or will be completed on schedule, if at all. clinical trials can be delayed for a variety of reasons, including delays in: obtaining regulatory approval to commence a trial; obtaining clinical materials; reaching agreement on acceptable clinical study agreement terms with prospective sites; obtaining institutional review board approval to conduct a study at a prospective site; and recruiting patients to participate in a study.orphan drug exclusivity affords us limited protection, and if another party obtains orphan drug exclusivity for the drugs and indications we are targeting, we may be precluded from commercializing our product candidates in those indications. we intend to seek orphan drug designation for the cancer indications that our glufosfamide and 2dg product candidates are intended to treat. under the orphan drug act, the fda may grant orphan drug designation to drugs intended to treat a rare disease or condition, which is defined by the fda as a disease or condition that affects fewer than 200,000 individuals in the united states. the company that obtains the first fda approval for a designated orphan drug indication receives marketing exclusivity for use of that drug for that indication for a period of seven years. orphan drug exclusive marketing rights may be lost if the fda later determines that the request for designation was materially defective, or if the manufacturer is unable to assure sufficient quantity of the drug. orphan drug designation does not shorten the development or regulatory review time of a drug, but does provide limited advantages in the regulatory review and approval process. because the prevalence of bph is greater than 200,000 individuals in the united states, th-070 for the treatment of symptomatic bph is not eligible for orphan drug designation and we cannot rely on this protection to provide marketing exclusivity. orphan drug exclusivity may not prevent other market entrants. a different drug, or, under limited circumstances, the same drug may be approved by the fda for the same orphan indication. the limited circumstances are an inability to supply the drug in sufficient quantities or where a new formulation of the drug has shown superior safety or efficacy. as a result, if our product is approved and receives orphan drug status, the fda can still approve other drugs for use in treating the same indication covered by our product, which could create a more competitive market for us. moreover, due to the uncertainties associated with developing pharmaceutical products, we may not be the first to obtain marketing approval for any orphan drug indication. even if we obtain orphan drug designation, if a competitor obtains regulatory approval for glufosfamide or 2dg for the same indication we are targeting before us, we would be blocked from obtaining approval for that indication for seven years, unless our product is a new formulation of the drug that has shown superior safety or efficacy, or the competitor is unable to supply sufficient quantities.even if we obtain regulatory approval, our marketed drugs will be subject to ongoing regulatory review. if we fail to comply with continuing united states and foreign regulations, we could lose our approvals to market drugs and our business would be seriously harmed. following initial regulatory approval of any drugs we may develop, we will be subject to continuing regulatory review, including review of adverse drug experiences and clinical results that are reported after our drug products become commercially available. this would include results from any post-marketing tests or vigilance required as a condition of approval. the manufacturer and manufacturing facilities we use to make any of our drug candidates will also be subject to periodic review and inspection by the fda. if a previously unknown problem or problems with a product or a manufacturing and laboratory facility used by us is discovered, the fda or foreign regulatory agency may impose restrictions on that product or on the manufacturing facility, including requiring us to withdraw the product from the market. any changes to an 11 approved product, including the way it is manufactured or promoted, often require fda approval before the product, as modified, can be marketed. we and our contract manufacturers will be subject to ongoing fda requirements for submission of safety and other post-market information. if we and our contract manufacturers fail to comply with applicable regulatory requirements, a regulatory agency may: issue warning letters; impose civil or criminal penalties; suspend or withdraw our regulatory approval; suspend any of our ongoing clinical trials; refuse to approve pending applications or supplements to approved applications filed by us; impose restrictions on our operations; close the facilities of our contract manufacturers; or seize or detain products or require a product recall. risks related to our financial performance and operationswe have incurred losses since our inception and anticipate that we will incur significant continued losses for the next several years, and our future profitability is uncertain. we may need substantial additional funding and may be unable to raise capital when needed, which could force us to delay, reduce or eliminate our drug discovery, product development and commercialization activities. developing drugs, conducting clinical trials, and commercializing products is expensive. our future funding requirements will depend on many factors, including: the progress and cost of our clinical trials and other research and development activities; the costs and timing of obtaining regulatory approval; 12 the costs of filing, prosecuting, defending and enforcing any patent applications, claims, patents and other intellectual property rights; the cost and timing of securing manufacturing capabilities for our clinical product candidates and commercial products, if any; the costs of establishing sales, marketing and distribution capabilities; and the terms and timing of any collaborative, licensing and other arrangements that we may establish. we believe that the net proceeds from this offering, together with our cash on hand, will be sufficient to fund our projected operating requirements for at least the next two years, including clinical trials of glufosfamide, th-070 and 2dg, the initial development of a sales and marketing effort, general corporate purposes and for the research and development of additional product candidates. however, we may need to raise additional capital or incur indebtedness to continue to fund our operations in the future. our ability to raise additional funds will depend on financial, economic and market conditions and other factors, many of which are beyond our control. there can be no assurance that sufficient funds will be available to us when required or on satisfactory terms. if necessary funds are not available, we may have to delay, reduce the scope or eliminate some of our development programs, which could delay the time to market for any of our product candidates. we may also need to seek funds through arrangements with collaborators or others that may require us to relinquish rights to certain product candidates that we might otherwise seek to develop or commercialize independently.raising additional funds may cause dilution to existing stockholders or require us to relinquish valuable rights. we may raise additional funds through public or private equity offerings, debt financings or corporate collaboration and licensing arrangements. we cannot be certain that additional funding will be available on acceptable terms, or at all. to the extent that we raise additional funds by issuing equity securities, our stockholders may experience further dilution. debt financing, if available, may subject us to restrictive covenants that could limit our flexibility in conducting future business activities. to the extent that we raise additional funds through collaboration and licensing arrangements, it will be necessary to relinquish some rights to our clinical product candidates.if we are unable to establish sales and marketing capabilities, we may be unable to successfully commercialize our cancer and bph product candidates. if our cancer product candidates are approved for commercial sale, we plan to establish our own sales force to market them in the united states and potentially europe. we may also consider establishing a sales force to market th-070 for the treatment of symptomatic bph. we currently have no experience in selling, marketing or distributing pharmaceutical products and do not have a sales force to do so. before we can commercialize any products, we must develop our sales, marketing and distribution capabilities, which is an expensive and time consuming process, and our failure to do this successfully could delay any product launch. our efforts to develop internal sales and marketing capabilities could face a number of risks, including: we may not be able to attract a sufficient number of qualified sales and marketing personnel; the cost of establishing a marketing or sales force may not be justifiable in light of the potential revenues for any particular product; and our internal sales and marketing efforts may not be effective.our success depends in part on recruiting and retaining key personnel and, if we fail to do so, it may be more difficult for us to execute our business strategy. we are currently a small organization and will need to hire additional personnel to execute our business strategy successfully. our success depends on our continued ability to attract, retain and motivate highly qualified management, clinical and scientific personnel and on our ability to develop and maintain important relationships with leading 13 academic institutions, clinicians and scientists. we are highly dependent upon our senior management and scientific staff, particularly our chief executive officer, dr. harold e. selick, and our founder and president, dr.george f. tidmarsh. we do not have employment contracts with either dr. selick or dr. tidmarsh. we are named as the beneficiary on term life insurance policies covering dr. selick and dr. tidmarsh in the amount of $2 million each. the loss of the services of dr. selick, dr. tidmarsh or one or more of our other key employees could delay or prevent the successful completion of our clinical trials or the commercialization of our product candidates. as of november 30, 2004, we had 42 employees. over the next three to six months, we expect to add a significant number of new employees at an annual cost between $2 and $4 million. our success will depend on our ability to hire additional qualified personnel. competition for qualified personnel in the biotechnology field is intense. we face competition for personnel from other biotechnology and pharmaceutical companies, universities, public and private research institutions and other organizations. we may not be able to attract and retain qualified personnel on acceptable terms given the competition for such personnel. if we are unsuccessful in our recruitment efforts, we may be unable to execute our strategy.as we expand our operations, we may experience difficulties in managing our growth. future growth will impose significant added responsibilities on management, including the need to identify, recruit, train and integrate additional employees. in addition, rapid and significant growth will place a strain on our administrative and operational infrastructure. as our operations expand, we expect that we will need to manage additional relationships with collaborators and various third parties, including contract research organizations, manufacturers and others. our ability to manage our operations and growth will require us to continue to improve our operational, financial and management controls, reporting systems and procedures. if we are unable to manage our growth effectively, it may be difficult for us to execute our business strategy.because we have operated as a private company, we have no experience complying with public company obligations, including recently enacted changes in securities laws and regulations. compliance with these requirements will increase our costs and require additional management resources, and we still may fail to comply. we are a small company with limited resources. we have operated as a private company, not subject to many of the requirements applicable to public companies. while we plan to expand our staff if we become public, we may encounter substantial difficulty attracting qualified staff with requisite experience due to the high level of competition for experienced financial professionals. as directed by section 404 of the sarbanes-oxley act of 2002, the sec adopted rules requiring public companies to include a report of management on the companys internal controls over financial reporting in their annual reports on form 10-k. in addition, the independent registered public accounting firm auditing the companys financial statements must attest to and report on managements assessment of the effectiveness of the companys internal controls over financial reporting. this requirement will first apply to our annual report on form 10-k for our fiscal year ending december 31, 2005. substantial uncertainty exists regarding our ability to comply with these requirements by applicable deadlines. if we are unable to complete the required assessment as to the adequacy of our internal control reporting or if our independent registered public accounting firm is unable to provide us with an unqualified report as to the effectiveness of our internal controls over financial reporting as of december31, 2005 and future year ends, investors could lose confidence in the reliability of our financial reporting.our facilities in california are located near an earthquake fault, and an earthquake or other natural disaster or resource shortage could disrupt our operations. important documents and records, such as hard copies of our laboratory books and records for our product candidates, are located in our corporate headquarters at a single location in redwood city, california, near active 14 earthquake zones. in the event of a natural disaster, such as an earthquake, drought or flood, or localized extended outages of critical utilities or transportation systems, we do not have a formal business continuity or disaster recovery plan, and could therefore experience a significant business interruption. in addition, california from time to time has experienced shortages of water, electric power and natural gas. future shortages and conservation measures could disrupt our operations and could result in additional expense. although we maintain business interruption insurance coverage, the policy specifically excludes coverage for earthquake and flood. risks related to our dependence on third partieswe rely on third parties to manufacture glufosfamide, th-070 and 2dg. if these parties do not manufacture the active pharmaceutical ingredients or finished products of satisfactory quality, in a timely manner, in sufficient quantities or at an acceptable cost, clinical development and commercialization of our product candidates could be delayed. we do not currently own or operate manufacturing facilities; consequently, we rely and expect to continue to rely on third parties for the production of clinical and commercial quantities of our product candidates. we have not yet entered into any long term manufacturing or supply agreement for any of our product candidates. our current and anticipated future dependence upon others for the manufacture of our product candidates may adversely affect our ability to develop and commercialize any product candidates on a timely and competitive basis. our current supplies of glufosfamide have been prepared by a subsidiary of baxter international, inc. and we are depending on those materials in order to conduct and complete our planned clinical trials. should those materials not remain stable, we may experience a significant delay in the completion of our pivotal phase 3 trial. although we are in the process of qualifying back-up vendors to manufacture glufosfamide active pharmaceutical ingredient, or api, and drug product, we have not yet done so, and we may not be able to do so at an acceptable cost or terms, if at all. we believe that we have sufficient supplies of th-070 api to conduct and complete our currently planned bph clinical trials. we have ordered additional th-070 api from jiangsu hengrui medicine company, ltd. we have recently entered into an agreement with pharmaceutics international, incorporated for the manufacture of th-070 drug product. we have not yet received any api or drug product from these manufacturers. the failure of pharmaceutics international to meet quality requirements or otherwise perform its obligations could significantly delay our th-070 clinical program. in addition, failure of jiangsu hengrui medicine company to provide acceptable api could delay commercialization of th-070, if approved. we believe that we have a sufficient supply of 2dg for our anticipated clinical trials over the next two years, although there can be no assurance that these supplies will remain stable and usable during this period. if these materials are not stable, we may experience a significant delay in our 2dg clinical program. we will need to enter into additional agreements for additional supplies of each of our product candidates to complete clinical development and/or commercialize them. there can be no assurance that we can do so on favorable terms, if at all. for regulatory purposes, we will have to demonstrate comparability of the same drug substance from different manufacturers. our inability to do so could delay our clinical programs. to date, our product candidates have been manufactured in quantities sufficient for preclinical studies or initial clinical trials. if any of our product candidates is approved by the fda or other regulatory agencies for commercial sale, we will need to have it manufactured in commercial quantities. we may not be able to successfully increase the manufacturing capacity for any of our product candidates in a timely or economic manner or at all. significant scale-up of manufacturing may require additional validation studies, which the fda and other regulatory agencies must review and approve. if we are unable to successfully increase the manufacturing capacity for a product candidate, the regulatory approval or commercial launch of that product candidate may be delayed, or there may be a shortage of supply which could limit our sales. 15 in addition, if the facility or the equipment in the facility that produces our product candidates is significantly damaged or destroyed, or if the facility is located in another country and trade or commerce with such country is interrupted, we may be unable to replace the manufacturing capacity quickly or inexpensively. the inability to obtain manufacturing agreements, the damage or destruction of a facility on which we rely for manufacturing or any other delays in obtaining supply would delay or prevent us from completing our clinical trials and commercializing our current product candidates.we have no control over our manufacturers and suppliers compliance with manufacturing regulations, and their failure to comply could result in an interruption in the supply of our product candidates. the facilities used by our contract manufacturers must undergo an inspection by the fda for compliance with current good manufacturing practice, or cgmp regulations, before the respective product candidates can be approved. in the event these facilities do not receive a satisfactory cgmp inspection for the manufacture of our product candidates, we may need to fund additional modifications to our manufacturing process, conduct additional validation studies, or find alternative manufacturing facilities, any of which would result in significant cost to us as well as a delay of up to several years in obtaining approval for such product candidate. in addition, our contract manufacturers, and any alternative contract manufacturer we may utilize, will be subject to ongoing periodic inspection by the fda and corresponding state and foreign agencies for compliance with cgmp regulations and similar foreign standards. we do not have control over our contract manufacturers compliance with these regulations and standards. any failure by our third-party manufacturers or suppliers to comply with applicable regulations could result in sanctions being imposed on them (including fines, injunctions and civil penalties), failure of regulatory authorities to grant marketing approval of our product candidates, delays, suspension or withdrawal of approvals, license revocation, seizures or recalls of product candidates or products, operating restrictions and criminal prosecution.we rely on third parties to conduct our clinical trials, and their failure to perform their obligations in a timely or competent manner may delay development and commercialization of our product candidates. we rely almost exclusively on third-party clinical investigators to conduct our clinical trials and other third-party organizations to oversee the operations of such clinical trials and to perform data collection and analysis. we are currently using several third-party clinical investigators. we are also using clinical research organizations to oversee our ongoing glufosfamide and th-070 clinical trials and expect to use the same or similar organizations for our anticipated clinical trials. there are numerous alternative sources to provide these services. however, we may face delays outside of our control if these parties do not perform their obligations in a timely or competent fashion or if we are forced to change service providers. this risk is heightened for our clinical trials conducted outside of the united states, where it may be more difficult to ensure that studies are conducted in compliance with fda requirements. we will rely significantly upon the accrual of patients at clinical sites outside the united states. any third-party that we hire to conduct clinical trials may also provide services to our competitors, which could compromise the performance of their obligations to us. if we experience significant delays in the progress of our clinical trials and in our plans to file ndas, the commercial prospects for product candidates could be harmed and our ability to generate product revenue would be delayed or prevented.we may rely on strategic collaborators to market and sell th-070 for the treatment of bph worldwide and our potential cancer products outside the united states. we have no sales and marketing experience. we may contract with strategic collaborators to sell and market th-070 for the treatment of symptomatic bph worldwide and our cancer products outside the united states. we may not be successful in entering into collaborative arrangements with third parties for the sale and marketing of any products. any failure to enter into collaborative arrangements on favorable terms could delay or hinder our ability to develop and commercialize our product candidates and could increase our costs of development and commercialization. dependence on collaborative arrangements will subject us to a number of risks, including: we may not be able to control the amount or timing of resources that our collaborators may devote to the product candidates; 16 we may be required to relinquish important rights, including intellectual property, marketing and distribution rights; we may have lower revenues than if we were to market and distribute such products ourselves; should a collaborator fail to commercialize one of our product candidates successfully, we may not receive future milestone payments or royalties; a collaborator could separately move forward with a competing product candidate developed either independently or in collaboration with others, including our competitors; our collaborators may experience financial difficulties; business combinations or significant changes in a collaborators business strategy may also adversely affect a collaborators willingness or ability to complete its obligations under any arrangement; and our collaborators may operate in countries where their operations could be adversely affected by changes in the local regulatory environment or by political unrest. risks related to our intellectual propertyth-070 and 2dg are known compounds that are not protected by patents as compounds per se. th-070 and 2dg are known compounds that are no longer eligible for patent protection as compounds per se. a compound per se patent excludes others from making, using or selling the patented compound, regardless of how or for what purpose the compound is formulated or intended to be used. consequently, these compounds and certain of their uses are in the public domain. acraf, s.p.a. has rights to market th-070 in certain european countries for the treatment of certain cancer indications, and we cannot prevent its sale for these indications or for indications where we have not received patent protection. even if we obtain patents for th-070 to treat bph, there may be off-label use of competitive products for our patented indications. we have in-licensed one issued patent that covers the treatment of breast cancer with 2dg in combination with paclitaxel or docetaxel and related applications that cover | -0.434942 | 18.23 | 1175.41 | 102.101 | 37333331 | 0.690 | True | 2005 |